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What effect does the means test have on my personal bankruptcy?

For many residents of Cincinnati, personal bankruptcy offers them an opportunity to resolve their financial challenges by eliminating debt through a Chapter 7 bankruptcy. The Bankruptcy Protection Act of 2005 introduced a qualification standard to be eligible for Chapter 7 debt relief.

The means test compares your average monthly income with the median family income in Ohio. Your income must be equal to or below the median amount. If it is not, you still have the opportunity to qualify by completing the second stage of the means test in which your monthly expenses are deducted from your income. The disposable income that remains must not leave you anything with which to eliminate debt.

In general, failing to qualify under the means test means that you may file a Chapter 13 bankruptcy, but you cannot file a Chapter 7. An individual bankruptcy filed under Chapter 7 by a person who does not qualify under the means test is subject to dismissal by the court. You may respond to the motion by proving that special circumstances exist. Special circumstances might include unemployment or a serious medical condition that would justify an adjustment to your income.

What makes the means test so important is that filing for bankruptcy under Chapter 7 offers the opportunity to eliminate debt. Chapter 13 bankruptcy offers you the chance to repay a portion of your debt through a plan of manageable payments that allows you to retain ownership of most of your assets.

The means test does not apply to all bankruptcy filers. Veterans seeking to discharge debt they accumulated while on active duty do not have to meet the means test if they are at least 30 percent disabled. It also does not apply to individuals filing for bankruptcy whose debts are attributable to running a business.

This posting is offered as an overview of a complex topic, and it should not be taken as legal advice. You might wish to speak with an attorney knowledgeable in bankruptcy law for legal advice and assistance in deciding which type of bankruptcy is best under your own personal circumstances.

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