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How does a means test affect a bankruptcy filing?

Ohio consumers who are considering their options for eliminating overwhelming debt may be confused with the qualification requirements for each option. These requirements are unavoidable if they choose to file for bankruptcy and the protection it offers. While most people know that consumer debts, such as credit card and medical debt, can be discharged almost immediately through Chapter 7 bankruptcy, they may not be aware that a means test must be completed to determine eligibility for Chapter 7.

The object of the test is to determine whether the consumer earns below the state's median income, or whether he or she has any disposable income after all expenses are paid to pay off existing debts. Those with a below-average income may qualify for Chapter 7 immediately, and although some assets may be liquidated to pay creditors, necessities are mostly exempt. Once a means test qualifies a consumer, a Chapter 7 bankruptcy filing will put an immediate stop to all debt collection actions by creditors.

If the consumer fails the means test, he or she will have the alternative option to file for Chapter 13 bankruptcy. This involves the preparation of a repayment plan to settle debts over a period of three-to-five years. The court must approve this plan, and if it is followed throughout the bankruptcy period, any remaining debt balances might be discharged. The protection against debt collection actions will be effective throughout the debt repayment period.

The means test can be confusing and even complicated, and the guidance of an experienced Ohio bankruptcy attorney may be invaluable. A lawyer can advise the consumer about which documents to gather to provide the necessary information. The attorney can also help with filling out the required forms to determine whether the client can file to have his or her debts forgiven through Chapter 7 bankruptcy. If not, the lawyer can assist with drafting a repayment plan for the court's approval of a Chapter 13 bankruptcy.

Source: csmonitor.com, "Why the bankruptcy means test matters", Sean Pyles, July 18, 2016

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