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Understanding Louisville’s Chapter 7 Means Test

— June 23, 2023

Louisville, Jefferson County, KY – Thousands of bankruptcy cases get filed in the state of Kentucky every year. From big businesses, like Bed, Bath & Beyond, to individuals down on their luck, a bankruptcy filing can offer a clean slate when debt threatens to pull you under.

If you are considering filing for bankruptcy, then you’ll need to speak to our specialized lawyers at your nearest convenience. You may feel tempted to delay filing for bankruptcy, either to avoid the social stigma associated with it or to look for a miracle solution. And while it’s important to explore all alternatives before filing, speed is also of the essence. The more you delay filing for bankruptcy, the more interest will accrue on your debts.

Chapter 7 vs Chapter 13 bankruptcy

In Kentucky, as in most other states, bankruptcy is governed by federal law. However, it is also subject to individual state regulations. As an individual filer, you’ll get to choose between two types of bankruptcy:

  • Chapter 7 bankruptcy offers more immediate relief (typically concluded within 4 months), and has the important benefit of waiving a considerable amount of debt. However, by filing for Chapter 7 bankruptcy, you also entrust a court-appointed trustee with the right to sell off your assets, in order to raise funds and settle your debts.
  • Chapter 13 bankruptcy is a long-term kind of repayment, done in monthly installments appointed by the court. While it allows you to keep all of your property and assets, it’s considerably more expensive and takes longer to complete.

Each type of bankruptcy has its pros and cons, and it’s best to consult Louisville bankruptcy lawyers to understand what they are. However, the choice is not entirely up to you but also hinges on your income.

Chapter 7 Means Test

Calculator, pen, and budget worksheet; image by Pixabay, via
Calculator, pen, and budget worksheet; image by Pixabay, via

According to federal law, you can only file for Chapter 7 bankruptcy if you have a reasonably low income. People with a high income are prevented from filing, and must instead opt for Chapter 13 bankruptcy. This also stops people with low incomes from filing for Chapter 13 bankruptcy, as they may not have the means to keep up with a monthly payment plan.

Here is an example of how to take the Chapter 7 Means Test on your own (though of course, you’ll also want to reach out to our Kentucky bankruptcy lawyers for a more accurate appraisal).

The Chapter 7 Means Test compares your household income with the state median for a family of your size. So, for Kentucky families, that’s as follows:

  • $55,256 for a family of 2;
  • $65,544 for a family of 3;
  • $78,689 for a family of 4.

If your household is larger than four, simply add $9,000 for every additional member. Falling under the median income in your area for similar-sized households may make you eligible for filing for Chapter 7 bankruptcy.

Of course, you will still need to pass an official Means Test. Your Louisville bankruptcy lawyers will advise you to be honest about your income, and your spouse’s income, and report your taxes correctly. Failure to do so may result in a charge of bankruptcy fraud.

Tip: Since you’ll be dealing with lawyers and court clerks for the next few months, now would be a good time to educate yourself a bit on legal matters. 

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