Each state has laws detailing the process of filing for bankruptcy. In this article, we will understand how to file bankruptcy in Cincinnati when you’re self-employed.
When you file bankruptcy in Cincinnati, the court orders a “means test” to determine your eligibility to file. There are two chapters (chapter 7 & 13) in the US Bankruptcy code that will be considered when you file for bankruptcy, and both these chapters have different uses for the means test. These chapters determine your eligibility and different means to file for bankruptcy.
A Means Test
A means test is a court-mandated test that determines if your income is too low to pay your outstanding debts. Under this, you report and document your average monthly payment of the past six months before filing to have the bankruptcy court compare your income to the Ohio median income. After that, they deduct specific monthly expenses to calculate your net monthly disposable income.
A chapter 7 bankruptcy will clear out all your dues in a few months and get you back to your daily life soon so that you can start rebuilding your credit back soon. It eliminates most of the consumer and business debts.
One of the ways to pay off creditors would be to sell your property, but the state of Ohio does have property exemptions to let you keep most of it. The exemptions include clothing, car, work-related tools, and household furnishing. You could also qualify as a “no asset,” i.e. a person with no saleable assets if you don’t own much property.
To qualify for chapter 7, you’ll have to submit your income and debts for the means test. You can only file for a chapter 7 bankruptcy if your gross monthly income is less than the Ohio median income.
While chapter 7 clears all your debt and gives you a clean slate, chapter 13 of the bankruptcy code gives guidelines to repay all or a part of your debt over three to five years. This plan is mainly for those that are not eligible for chapter 7 of the bankruptcy code. Or if you have a desire to pay only some of your debt for any reason or to keep your assets such as a car or house from being sold to creditors.
While chapter 7 ends all of your debt crisis once and for all, chapter 13 tries to reduce the blow. The letters and calls are stopped, and it also gives you a chance to consolidate your dues to avoid dues and fines. Once you complete the court-approved repayment plan, all the debts covered by it are considered discharged. The means test is used here to determine how long your plans should last and how much you should pay from the court calculated net monthly disposable amount.
You can only file for bankruptcy if the court finds that your income is too low to pay your past dues. But how does the court know if your income really is too less? For that, you need to determine your income.
How To Determine Income?
For a family as big as yours, if your income is higher than the median income of Ohio State, then you’ll have to conduct the means test. Here, you need to calculate your income and expense based on your records. Your income would include business income, rental income, house expenses paid by others, pensions and retirement plans, interests and dividends, etc.
Being self-employed, you must be extra careful in disclosing your business income to the court since this is an income that would vary monthly and is mostly undocumented. Failure to provide the correct details could result in your case getting dismissed.
It is advisable to take the help of an attorney in case you do not understand how to produce documentation for your business income.
How To Submit Proper Documentation when you File Bankruptcy Proceedings?
Being self-employed, the first thing you should do is immediately tracking and documenting every single means of income you have.
You should track your income and create profit or loss statements. Also, it is highly advisable to have backup documents because, in all likelihood, they will be questioned by the court.
How To Create Backup Documents When You File Bankruptcy Papers?
Here are tips for how to create backup documents when you file for bankruptcy.
- Have check slips and record proof of payments from payers.
- Use bank statements to track deposits of any kind and even take printouts of any checks from the banks.
- For cash payments, simply get a signed statement from the payer acknowledging the payment. Then deposit the exact amount in the bank and highlight it in the bank statement.
- Having tax returns from two years prior to bankruptcy is a good way to determine income.
If you need assistance and are unsure how to file bankruptcy in Cincinnati, contact our experienced attorneys today.