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Am I eligible for bankruptcy under the means test?

If you’re considering bankruptcy, you may have heard of the bankruptcy means test and wondered what it means for your eligibility for bankruptcy. Good news! In general, the bankruptcy means test does not exclude you from filing for bankruptcy.

In 2005, the U.S. government acted to crack down on abuses of the bankruptcy system by passing the means test. The new rule specifically addresses wealthy debtors — people who may have adequate income to pay off their debts.

And even better, the rule only applies to Chapter 7 bankruptcy (in which you have the ability to completely wipe out your consumer debt.) Even individuals that fail the test may still be eligible to file for Chapter 13, under which they would pay back a reduced portion of their debts over time.

So there’s no reason to fear the bankruptcy means test — although you do need to be informed. Here’s what it means for you.

How the rules apply

The language of the test is complex, but it boils down to this:

  • If you earn less than the median income in your state, you are NOT subject to the means test. You don’t have to worry about it.
  • If you earn more than the median income, you do have to pass the means test in order to be eligible for bankruptcy. However, the test is actually rather lenient, as it is designed to catch abuses of the system, not punish legitimate debtors.

How is the bankruptcy means test calculated?

In general, the test calculates your income and your debts, and provides a certain ratio of debt to income at which you are deemed to have “passed.” If you’re unsure if you would be eligible, you should see a qualified bankruptcy attorney in your area, who can help you determine your eligibility. As always, your situation is unique, and an attorney consultation is the only way to get real answers on available remedies for eliminating your debt.

Have a question about the bankruptcy means test?

We’re happy to help. Contact us to schedule your complimentary consultation with an Ohio Bankruptcy attorney. You’ll learn all you need to know about the bankruptcy process, and the best way to start protecting yourself from creditors now. Click here and provide contact information to schedule your free consultation.

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In financial trouble? A four step plan for taking control of debt

If you’re in financial trouble, sitting around worrying won’t help.

When confronted with a challenge, it’s tempting to stick our heads in the sand and pretend it doesn’t exist. This may make us feel better in the short term, but in the long term it only makes the situation worse.

The most important thing to understand is this: You have to take the initiative to fix your financial troubles. No one else can swoop in and set your financial house in order, and unpaid bills simply will not go away.

Once you really understand this, the biggest way to make an impact is to take some simple, concrete steps to get your financial house under control. We don’t suggest that you can fix all your financial trouble overnight — after all, it’s hard to do great work when you’re overwhelmed. But with a couple of hours and some gumption, you can start to pull together some information that can lead to solutions. Here’s how:

1. Set aside a half a day. Clear your schedule, and let others in your household know that you have something important that you need to focus on for a little while. Make sure you have enough time to get the job done — it may only take an hour, but you don’t want to get distracted and end up falling short of your goal.

2. Ahead of the scheduled time, pull together all of your financial paperwork. This includes all of your monthly bills, credit card statements, any collections notices, pay stubs, bank statements, anything having to do with money. You don’t even have to look at it now, you just want to have it available so that when it is time to start going through everything, it’s all in one place. Put it in a giant cardboard box so that it’s at the ready.

3. Sort the paperwork. In order to get an accurate picture of your financial situation, you need to know how much money you have, how much you owe, and what money is coming in and going out every month. So, sort all of your paperwork according to these categories. Your bank statements show how much money you have. Bills that are not for the current month that you haven’t paid show how much you owe. Credit card statements for which you carry a balance can also count for this amount. Your pay stubs, unemployment statements, Social Security benefit, workers’ compensation, pension statements — all of these count as what money is coming in. And then there’s what money is going out, which is typically your current credit card statements and any bills for the last month, including a mortgage or rent, utilities, telephone, cable, car and other regular payments.

4. Total up each category. On a sheet of paper, write down all of the amounts that fit into each column. So, you may find you have $500 in the bank, $1,200 coming in each month, $7,500 in unpaid debts like credit card balances or car loans, and expenses of $2,000 each month for your basic living needs. For every sheet of paper, figure out where it fits into the puzzle and record it so you can get an accurate picture of your current financial situation.

Once you have this total, you can start to look at whether it’s feasible to pay off what you owe, and if you can turn around your financial picture the way that you’re currently living. In our next post, we’ll look at ways that you can start to turn things around, and when to look at other options for your debt management.

You have the power to end your financial troubles. Read more next week, or contact a Columbus Bankruptcy Attorney today to get answers to all of your questions about eliminating your debt. Click here to schedule your free consultation.