Running a small business takes grit, determination, and a whole lot of demanding work. Unfortunately, sometimes, even the best efforts cannot protect you from unexpected financial hurdles. You might consider bankruptcy if you face overwhelming debt as a small business owner. But did you know something called the “Means Test” can impact your options?
Ohio means test: How does it apply to you?
This test lets you find out if you can file for Chapter 7 bankruptcy. Here is how it works:
- Calculating your income: The test analyzes your average monthly income for six months before you file, considering all sources of income, including wages, salary, business income, and even unemployment benefits.
- Comparing to median income: The court compares your average monthly income to the general income for a typical household. If your income is below the median income, you generally qualify for Chapter 7 bankruptcy.
- Above-median income and the “means” to pay: The court will use a formula to check if you have enough disposable income to pay your debts under a Chapter 13 bankruptcy repayment plan.
Chapter 7, also known as liquidation bankruptcy, helps people to erase certain debts, giving them a fresh start with their finances.
What happens if you do not pass the means test?
Failing the Means Test does not automatically disqualify you from bankruptcy. However, it often means Chapter 7 bankruptcy is not an option. If your income is above the median, you might still be considered for Chapter 13 bankruptcy.
Chapter 13 allows you to suggest a repayment plan to creditors, often at a reduced amount or with more manageable terms, spanning three to five years. While Chapter 13 requires a structured repayment strategy, it prevents creditors from pursuing individual collection efforts against you.
How can you make sense of bankruptcy complexities?
Deciding to file for bankruptcy, whether Chapter 7 or Chapter 13, is a big step. You must understand the details of the Ohio Means Test and how it affects your finances, which requires careful thought. Asking for guidance from a legal professional with experience in bankruptcy law can clarify and help you explore all available options for your circumstances.