Wednesday, March 15, 2017

Understanding the Bankruptcy Means Test

Do I qualify to file for Chapter 7 bankruptcy?

Chapter 7 bankruptcy can provide a lifeline for Americans struggling with overwhelming debt. However, in order to seek some of the relief that a Chapter 7 bankruptcy can offer, you must meet a stringent “means test.”  The means test is designed to identify which bankruptcy filers are truly unable to repay their debts.  Anyone considering the possibility of filing for Chapter 7 should consult with an Ohio Chapter 7 bankruptcy attorney for an evaluation of their income and expenses according to the federal means test.

Step 1:  Income

The means test will first look to your income.  Your income will be compared to the median income for a household of your size.  For a single earner in Ohio, the median income is $43,057.  For two people, the median income in the state goes up to $53,075.  If you make less than the median income for a household of your size, you can file for Chapter 7 bankruptcy without needing to complete any additional steps.  If you make over the median income, you will need to perform more calculations to determine whether you qualify to file for Chapter 7.

Step 2:  Expenses

For an individual filer or household with an income that exceeds the Ohio state median, the means test at this point becomes more complex.  You will need to determine whether you have enough income left over after paying your allocated monthly expenses to pay off a portion of your unsecured debt.  If your disposable income exceeds Ohio’s median income limits, you will not be able to file for Chapter 7 bankruptcy. You may, however, still be able to file for Chapter 13 bankruptcy, which allows you to enter into a five-year repayment plan to satisfy your debts.  

Expenses that can be deducted from your income to assess your eligibility to file for Chapter 7 include food and clothing, out of pocket health care expenses, mortgage and rent costs, vehicle payments, taxes, and much more.  Your Chapter 7 bankruptcy attorney will carefully review your expenses to help determine your eligibility and navigate you through the bankruptcy filing process.  


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