Monday, July 17, 2017

The Bankruptcy Means Test Explained

Am I eligible to file for Chapter 7 bankruptcy?

Bankruptcy can offer tremendous financial relief to some individuals who find themselves burdened by debt.  In order to be eligible to file for bankruptcy, you must meet a stringent means test to determine whether your income is low enough to qualify for Chapter 7.  While most potential filers have heard of the means test, few are familiar with its specific requirements.  The following is an overview of the Chapter 7 means test and a look at your potential options if your income exceeds means test limits.  

Is Your Monthly Income Below the Median?

You will first want to determine your monthly income and compare it to the median income for a household of your size in Ohio.  Individuals with a consistent monthly income can make this comparison easily, while independent contractors or anyone with income variability may need to perform more complex calculations.  If you earn less than the median income for a family your size in your area, then you pass the means test.  You qualify to file for Chapter 7 bankruptcy and do not need to complete any other part of the means test.

Do You Lack Disposable Income to Repay Your Debts?

If your income exceeds the state median, you will need to meet some additional components to the means test in order to qualify.  You will need to show that you cannot pay off your unsecured debts because you do not have sufficient disposable income, or funds left over after paying your monthly expenses to pay off your debts.  Your allowable expenses will be dictated by both national and Ohio standards.  Expense allowances may include costs associated with housing, your vehicle, taxes, life insurance, child care, health insurance, and more.  Contact your attorney for assistance with performing the calculations needed to determine whether you pass this complicated portion of the means test.  For those who qualify, your lawyer can assist you in starting the bankruptcy process.  

If You Don’t Pass the Chapter 7 Means Test

If you do not pass the Chapter 7 means test, do not despair because you may still have options to eliminate your debt.  Those who can’t file for Chapter 7 bankruptcy may be able to pursue a Chapter 13 bankruptcy, which will allow you to make monthly payments over a three to five-year period.

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