Means Test For Bankruptcy If You’re Self-Employed

If you’re self-employed and considering filing for bankruptcy in Ohio, you can file either a Chapter 7 or a Chapter 13 bankruptcy, just like anyone else.  However, before you can file you need to complete a “means test” to determine and prove your average income for the prior six months. This requirement can be tricky for the self-employed.

The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to evaluate your financial situation.  We can help by looking at your income, your debts and your goals, seeing if you qualify to file a Chapter 7 bankruptcy under the means test or if a Chapter 13 repayment is required, and coming up with a plan that’s best for you.

What is a Means Test?

Because of abuses in the bankruptcy system, Congress passed the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.” This added a “means test” to determine whether an individual’s monthly income is too high to qualify for a Chapter 7 bankruptcy.  The bankruptcy court looks at the debtor’s average income for the six months prior to filing and compares that income to the median income for that state. It then deducts specific monthly expenses to arrive at your monthly net disposable income. If your net disposable income is too high, you may not be allowed to use Chapter 7 bankruptcy, but you may still be able to file for Chapter 13.
Be aware that there are exceptions to the means test requirement. Social Security income is not considered in the “means test” calculation. And non–consumer or business debtors are not required to even take the means test. So a self–employed business person whose debts are primarily business-related can have substantial monthly income and still file a Chapter 7 bankruptcy.

What are the Means Test Rules in Ohio?

If your gross income is below the Ohio median for your household size, no problem — you are exempt from the test and may file a Chapter 7. If your income is higher than the median, you will need to complete the means test.

Your average household income is determined by averaging your monthly income over the last six calendar months. You then multiply that by 12 to determine your annual income.  The median income varies depending on where you live and your household size.
If your income has declined over the last six months, then waiting one or more months might bring your income under the median level for Ohio. The attorneys at Fesenmyer Cousino Weinzimmer can review your income and develop a personalized strategy for you.

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Also, if your debts are business-related and not primarily consumer debts, then you are exempt from the means test. And you are exempt from the means test if you are a disabled veteran and incurred your debt primarily during active duty or while performing a homeland defense activity.

When Income Is Higher Than Median

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 but is not limited to: business income, rental income, interest and dividends, pensions and retirements plans, amounts paid by others for your household expenses, and unemployment income.

Determining average monthly income for the independent contractor or self-employed can be difficult, especially since income can be irregular and undocumented.  Failure to provide documentation or an incorrect calculation can result in dismissal of the bankruptcy case.  Take these steps to help the documentation process:

1) Track Income

Track income by keeping regular records of income and expenses or creating profit and loss statements.  Since these are your records, they may be questioned by the bankruptcy court, so back-up documentation is necessary.

2) Provide Supporting Documents.  These include:

  • Check stubs.  Save check stubs, and if you can’t get them, try to obtain proof of payments from the payor.
  • Bank statements. Use these to track deposits of checks or cash.  Get copies of checks from the bank, or print them online from your computer.
  • Signed statements.If you receive 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.
  • Invoices and Contracts:  If you do not currently create written invoices, start doing so in anticipation of filing for bankruptcy.

Contact Us and Get Help

If you’re self-employed, don’t contemplate 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 fit for your financial situation.

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 email for your free consultation so we can determine what debt relief solutions will work best for you.

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