There are two types of personal bankruptcy available – Chapter 7 and Chapter 13. Both have benefits depending on your situation and need. Chapter 13 creates a payment plan so it is easier to pay off at least portions of your debts in three to five years. Chapter 7 totally wipes away your debts and gives you a clean slate after selling off certain assets.
The catch to Chapter 7 bankruptcies, though, is that your income must be low enough to qualify. It is intended to help people who truly can’t pay off their debts. To determine who qualifies for Chapter 7, bankruptcy courts use the means test.
If you have questions about either type of bankruptcy and if a means test would benefit you, contact the experienced Cleveland bankruptcy attorneys at Luftman, Heck & Associates. We will work with you to determine your best options.
Call (216) 586-6600 for a free and confidential consultation.
What the Means Test Measures
The means test measures your disposable income by removing specific monthly expenses such as mortgage or lease payments, car payments, and other expenses from your current monthly income. When filing for bankruptcy, the means test defines your monthly income as the average monthly income over a six month period prior to filing.
If you hit a certain threshold of disposable income on the means test, you will not qualify for Chapter 7. In general, the larger a disposable income you have, the less likely you are to qualify.
If your monthly income is lower than the state median, you automatically qualify for Chapter 7 bankruptcy. In Ohio, the median income used to determine eligibility for Chapter 7 depends on the number of people living in the household.
You can look at the chart to see the Ohio Median Income Standards for Means Test for Cases Filed On or After May 1, 2020:
- 1 Person in Your Household – $4,274.75
- 2 People in Your Household – $$5,388.75
- 3 People in Your Household – $6,470.17
- 4 People in Your Household – $7,769.92
- 5 People in Your Household – $8,519.92
- 6 People in Your Household – $9,269.92
- 7 People in Your Household – $10,019.92
- 8 People in Your Household – $10,769.92
- 9 People in Your Household – $11,519.92
- 10 People in Your Household – $12,269.92
Disposable Income for Families Earning Above the Median
If your monthly household income exceeds the state median, qualifying under the means test gets more complicated. It depends on the disposable income mentioned earlier. Just remember, that only certain expenses are allowed into this calculation.
For some of those categories, such as childcare, you simply fill in the actual expense every month. For others, you can only deduct a standard allowance defined by the IRS. While some of those standards are the same everywhere, others vary based on the county where you live. To ensure that you do this correctly, it helps to have an experienced Ohio bankruptcy attorney, to assist you in filling out the forms. To get a general idea of whether or not you qualify, you can look up means test calculators online.
What the Means Test Proves
Depending on how much disposable income is left after paying your allowed monthly expenses, the means tests decides if you have enough money to pay off some of your unsecured debts.
One example of unsecured debt is credit card debt. If your income is higher than a certain amount defined in the means test, you may not be eligible for a Chapter 7 bankruptcy.
Our Cleveland Bankruptcy Lawyers Can Help
Generally speaking, many people who are in over their heads in debt may qualify for Chapter 7 bankruptcy if the means test calculation is done correctly. If you live in Ohio and believe that Chapter 7 bankruptcy may give you needed relief, consider working with an experienced Ohio bankruptcy attorney.
At Luftman, Heck & Associates, we will walk you through these calculations and help you and your family decide which option is the right one for you, whether it is Chapter 7, Chapter 13, or another avenue entirely.
Call Luftman, Heck & Associates at (216) 586-6600 to set up a free consultation. We are ready to support you through the entire process to get you back on your feet.