Bankruptcy, a legal way to have many debts forgiven, can put you and your business on the road to financial recovery. Filing can allow you to keep running your business, stop creditors from harassing you and seizing your possessions, allow debts to be forgiven, and provide a way for you to keep your assets and begin to rebuild your business and your life.
However, if you are self-employed or an independent contractor and planning to file for bankruptcy, the procedure is a bit more complicated. You will have to verify your income and you might have to complete a “means test” to determine and prove your average income for the prior six months.
The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to evaluate your financial situation. We can help determine if you qualify to file a Chapter 7 bankruptcy under the means test or if a Chapter 13 repayment is required and will recommend a plan that will get you on the road to financial stability.
Chapter 7 or Chapter 13?
The United States Bankruptcy Code provides several ways for individuals to file bankruptcy.
- Chapter 7 Bankruptcy: A Chapter 7 bankruptcy can discharge (eliminate) most or all consumer and/or business debts so they no longer have to be paid. Chapter 7 bankruptcy is over in a few months, so you can begin rebuilding credit quickly. You might have to sell property to help pay off creditors, but there are Ohio bankruptcy exemptions that list types of property that cannot be sold. Exemptions can include clothing, cars, equipment used for work (like tools) and household furnishings. If you do not own a great deal of property, your possessions may be all be exempt, qualifying you for a “no asset” case.
Your income and debt will be subject to a “means test” to determine if you qualify for Chapter 7. If you are not eligible, filing for Chapter 13 may still be an option.
- Chapter 13 Bankruptcy: With a Chapter 13 bankruptcy, you can repay some or all of your debt affordably over a three- to five-year period. This plan is best for those who don’t qualify for Chapter 7, who have a steady income, temporary financial problems and a desire to repay some of the debt in order to keep an asset such as a car or a house. Chapter 13 allows you to consolidate your payments to avoid fees and fines, and it stops phone calls and letters from creditors. If you successfully complete the court-approved payment plan, the debts covered by the plan are discharged.
There are advantages and disadvantages to filing under the various chapters, and you will still be responsible for certain debts, including child support, spousal support obligations, student loans and most unpaid taxes. However, bankruptcy can eliminate credit card debt, medical bills and unsecured loans, and stop harassment by creditors.
What is a Means Test?
The “means test” is used to determine whether an individual’s monthly income is too high to qualify for a Chapter 7 bankruptcy. You must report and document your average income for the six months prior to filing, and the bankruptcy court compares that income to the median income for Ohio. It then deducts specific monthly expenses to arrive at your monthly net disposable income to see if you can file Chapter 7. You can file Chapter 7 if your gross income is below the Ohio median for your household size.
If you are self–employed and your debts are primarily business-related, you don’t have to take the means test and can file a Chapter 7 bankruptcy even if you have substantial monthly income.
For a Chapter 13 bankruptcy, the means test will determine the terms of your plan, such as how long it will last and how much you must pay to nonpriority, unsecured creditors.
If your income is over the Ohio median income for a household your size, then you must complete the means test by calculating your income and expense information from your own personal records. Income includes: business income, rental income, interest and dividends, pensions and retirements plans, amounts paid by others for your household expenses, unemployment income, etc.
If you are self-employed, it can be more difficult to determine average income, since business income may be irregular and undocumented. Unfortunately, failure to provide documentation or an incorrect calculation can result in dismissal of the bankruptcy case. This is an area where the skilled Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer can help keep you from making mistakes.
Steps to Provide Proper Documentation.
If you are self-employed and considering bankruptcy, get your paperwork in order and immediately begin tracking and documenting your income.
1) Track Income
Keep regular records of income and expenses and create profit and loss statements. Provide back-up documentation, as your records may be questioned by the courts.
2) Provide Supporting Documents. These include:
- Check stubs and proof of payments from payors.
- Bank statements. Use these to track deposits of checks or cash. Get copies of checks from the bank, or print them online.
- Signed statements. For cash payments, get a signed statement from the payor, deposit the payment into a bank account, and attach the signed statement to your bank statement.
- Tax returns covering two years prior to your bankruptcy are a good way to document income.
- Invoices and Contracts: Create written invoices in anticipation of filing for bankruptcy.
Contact Us and Get Help
If you’re self-employed, it’s particularly important not to undergo the bankruptcy process alone. At Fesenmyer Cousino Weinzimmer we provide a free initial consultation where we will evaluate your entire financial situation. We examine your income, your debts and your goals, and then discuss the best options for you. If bankruptcy is the right step, we are there to file for you, represent you in court, help rebuild your credit and fight for you every step of the way.
Delaying can only make matters worse, so call the experienced Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today. Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or contact us online for your free consultation so we can determine what debt relief solutions will work best for you.