Tuesday, February 6, 2018

In Focus: The Bankruptcy Means Test

Can I still file for bankruptcy if my income exceeds Ohio’s median income level?

Chapter 7 bankruptcy can be a powerful tool to erase your burdensome debt.  To file for Chapter 7 bankruptcy, you will need to qualify under the Chapter 7 “means test.”  The two-part means test is a critical component to any bankruptcy filing.  Your bankruptcy process should start with a thorough evaluation under the means test to determine whether Chapter 7 bankruptcy is a viable option for you.  

Comparing Your Income to Your State’s Median Income

Part one of the Chapter 7 means test requires you to compare your household income to the median income for a household of your size in your area.  Start by assessing your annual income.  If you are a salaried employee, this may be an easy calculation.  Those who are self-employed will want to gather documentation of their income over the past six months to project your annual earnings.  If you have lost your job in the past six months, this drop in income will be factored into the means test.  On the other hand, if you recently received a raise, your income increase will be considered as well.

In Ohio, as of 2016, the median income for a one-person household is $47,582.  For a family of four, the median income goes up to $83,515.  Annual income estimates are ever changing, so check with your Ohio bankruptcy attorney for the most up-to-date information.  

If your income falls below the median Ohio income for a family of your size, you have passed the Chapter 7 bankruptcy means test.  You can file for Chapter 7 bankruptcy and need not continue to part two of the means test.  Those with an income exceeding the median may still qualify under the second part of the means test.

Calculating Your Disposable Income

Those with an income that is higher than the median should take steps to calculate whether they have enough disposable income to cover their debts.  Tally up your expenses over the past six months.  Subtract your allowable expenses, which will include your rent, medical costs, and groceries.  Funds leftover are deemed disposable income that you can put towards paying off your debts.  

If your disposable income is low enough such that you could not reasonably pay off your debts, you may be eligible to file for Chapter 7 bankruptcy.  The second portion of the means test is complex and you will need the assistance of a skilled bankruptcy attorney to ensure your expenses are documented properly so that you can file for bankruptcy.

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