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Changes to the Bankruptcy Means Test

Green sign that reads debt relief

If you’re facing mounting debt and wondering if you’ll be able to keep up with your expenses, you may be considering bankruptcy. Personal bankruptcy comes in two main forms: Chapter 7 and Chapter 13. Filing for bankruptcy will be a very different experience based on the chapter, with both positive and negative qualities to each, but not every debtor qualifies for both chapters. The Kentucky bankruptcy means test will be a major factor in determining the chapter under which you file.

Bankruptcies are administered by federal bankruptcy courts, but whether or not you qualify to file under Chapter 7 bankruptcy will depend on how your income and expenses compare to the average resident of your home state. The federal government calculates the median income for individuals and families based on census data and uses this average income as the Chapter 7 threshold: those who make less qualify for Chapter 7, and those who make more can take additional steps to try to qualify for Chapter 7, or they can file under Chapter 13.

State median family incomes are initially based off of 10-year federal census data, but the U.S. Bankruptcy Court adjusts this median income approximately twice a year based on the changing cost of living. Additionally, the court adjusts certain amounts within the Bankruptcy Code – the laws and procedures governing the bankruptcy process – every three years, also based on the cost of living and effects of inflation. Any bankruptcy filings occurring on or after April 1, 2016, will be governed by both the three-year adjustments to the Code and a biannual adjustment to state median incomes. As a result of the increased median income, in order to qualify outright to file under Chapter 7 in Kentucky, an individual would need to make less than $41,382 annually; less than $48,856 annually for a family of two and $69,676 for a family of four.

Meeting the Chapter 7 means test by making less than the state’s median income can be helpful whether or not you decide to file under Chapter 7. While you may wish to benefit from being able to discharge debts under Chapter 7, there are certain advantages to filing under Chapter 13 as well. For those who meet the Chapter 7 means test but nevertheless choose to file under Chapter 13, you will benefit from an abbreviated repayment period, so that you will only need to make payments under your court-ordered plan for three, rather than five, years. An experienced Kentucky bankruptcy attorney will be able to explain the advantages and disadvantages of each chapter to you before you file.

If you’re considering filing for bankruptcy in Kentucky, contact the knowledgeable and experienced Bowling Green consumer law and bankruptcy attorney Lanna Kilgore for a consultation on your case, at 270-846-3700.

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