Kentucky Chapter 7 Means Test Louisville

Louisville’s Guide to the Bankruptcy Means Test: Qualify for Chapter 7 in Kentucky

You can eliminate debt and regain financial stability. Most people who want to file for Chapter 7 bankruptcy do qualify. We will explain how. Since 2005, federal bankruptcy code has required the “means test” to ensure Chapter 7 is available for those who truly need it, not those who can afford to pay back a reasonable amount of debt.

At Nick C. Thompson Bankruptcy Attorney, we use our decades of experience to analyze your income, expenses, and circumstances to determine your best path forward.  We look for expenses which will allow you to qualify for a Chapter  7 and take less than 20 cases per month to make sure we do a good job.

What Is the Bankruptcy Means Test?

The means test is a two-step calculation to check if your monthly income is low enough to qualify for a Chapter 7 debt discharge. It is rare for you to need a Chapter 7 and not pass this test.  The means test only affects the top 2-3% of wage earners by keeping them from filing a Chapter 7 bankruptcy.  This test doesnt use your average annual income.  It averages your prior 6 months of income to get the kentucky median income.

The Means Test has two main parts:  You can still pass if you don’t pass the first test. 

  1. Step 1: The Median Income Test. We compare your household monthly income to the median monthly income of similar-sized households in Kentucky. If you are below the median monthly income, you automatically pass and qualify for Chapter 7.
  2. Step 2: The Disposable Income Test. If your income is above the median monthly income, we perform a detailed expense analysis. You can still qualify if your reasonable and necessary expenses leave you with too little “disposable income” to make a meaningful payment to creditors in a Chapter 13 plan.

Step 1: The Kentucky Bankruptcy Means Test

To calculate your qualifying income, the court looks at the average of your total household monthly income from the six prior calendar months before you file your case. We dont use the income for the month you file.  We then annualize that median family income number.

Example: If you file in October, we use your income from April 1st through September 30th.

The U.S. Trustee updates the median average household income amounts four times per year. We use the most current household income figures to calculate your eligibility.

Household Size Kentucky Annual Median Income limits (Effective May 15, 2025)
1 Person income limit $57,764 household income
2 People income limit $69,371
3 People income limit $84,183
4 People income limit $105,955 household income
For each additional person, add $11,100

If your calculated annual income is below the amount for your household size, you pass the means test and can file Chapter 7.

Step 2: The Monthly Disposable Income Test

If your income is higher than the Kentucky median, you can still qualify for Chapter 7. This second, more complex part of the means test analyzes your reasonable and necessary expenses.  This is your household expenses.

You can still file Chapter 7 if your budget shows that, after deducting for reasonable household expenses, you have $150 or less in disposable income per month to pay unsecured non-priority creditors. If the amount you have left over would pay back little to nothing over five years in a Chapter 13 plan, you qualify for Chapter 7.

Means Test Exceptions: When Income Is Not a Barrier

The means test is only a legal presumption that your filing is an abuse of the system. You may be still be exempt from the test or can overcome the presumption if you meet certain criteria.

  1. Primarily Business Debt: If more than 50% of your total debt is business debt (not consumer debt), the means test does not apply to you.
  2. Disabled Veterans: Veterans who incurred most of their debt while on active duty or performing a homeland defense activity are exempt from the means test.
  3. Sudden Change in Circumstances: A recent event like a sudden disability, loss of a spouse’s income, or retirement may allow you to file Chapter 7, even if your prior six months of income were high. We can present evidence to the court to overcome the presumption against filing.

Strategic Timing: Filing for Maximum Benefit

Timing your bankruptcy filing can be crucial. Since the means test uses a six-month lookback, you might be able to qualify by waiting for a period of low income.

You can often qualify for chapter 7 bankruptcy by lowering your average income temporarily. This could happen if you file while you are:

  • Unemployed or underemployed.
  • Back in school.
  • On maternity or family leave.
  • Experiencing a seasonal dip in income.

If your income has decreased recently, a small delay could shift your six-month lookback window to reflect a lower average income, helping you qualify for Chapter 7.

Overlooked Expenses That Help You Qualify

Even if you are an above-median earner, we look closely at your budget to ensure you deduct every necessary expense. Failing to include these expenses is a common mistake that can disqualify you from Chapter 7.

  • Secured Debt Payments: Your actual mortgage payment and car loan payments are deducted, even if they are higher than the standard IRS amounts.
  • Necessary Dependent Expenses: Do not forget expenses for children, such as:
    • Childcare, daycare, or babysitting.
    • School lunches and school activity fees.
    • Court-ordered child or spousal support.
  • Healthcare and Insurance: Health insurance premiums, ongoing medical expenses, and even pet care can be reasonable expenses. You may need documentation for unusually high medical costs.
  • Taxes: Deduct the amount of income taxes you are required to pay annually, even if you are currently withholding less.
  • Retirement Contributions: Reasonable 401k/retirement contributions and loan repayments are allowed deductions, provided you have a history of making them.
  • Charitable Donations: Donations to your church or other charities are allowed if you have a history of making them.

Chapter 7 vs. Chapter 13: Making the Right Choice

If you fail the means test, it does not mean you cannot file bankruptcy; it simply means you must file a Chapter 13 repayment plan. However, many debtors choose Chapter 13 even when they qualify for Chapter 7 because it offers greater benefits for their specific financial goals.

Choose Chapter 13 if you need to:

  • Stop Foreclosure: Catch up on missed mortgage payments over a 3- to 5-year plan to keep your home.
  • Strip a Second Mortgage: Eliminate a second mortgage or home equity line of credit (HELOC) if the property value is less than the first mortgage balance.
  • Manage Non-Dischargeable Debt: Pay priority debts like certain income taxes and domestic support obligations over time without interest.
  • Protect Co-signers: A Chapter 13 plan can protect a co-signer on a consumer debt.
  • Keep Non-Exempt Property: Chapter 13 allows you to keep property you would have lost in a Chapter 7, such as significant equity in a second car or other assets.

Fact Check: Chapter 13 Debt Limits

You can only file a Chapter 13 if your debts are below the federally mandated limits. For cases filed on or after April 1, 2025, you must owe less than:

  • $526,700 in unsecured debt (like credit cards and medical bills).
  • $1,580,125 in secured debt (like mortgages and car loans).
  • To ensure you have everything in order for the filing, review the documents needed to file Bankruptcy

Be Wary of “Chapter 13 Loading”

We often hear about law offices that push clients into Chapter 13 cases, where the attorney fee is often higher. About 70% of all bankruptcy cases nationwide are Chapter 7s. If an attorney tries to talk you into a Chapter 13 without a clear, verifiable reason that benefits you (like saving your home), ask questions. We commit to recommending the chapter that best serves your goals for debt relief and financial recovery.

What Should I Do Next?

The time to file is critical. The sooner we start, the more options you have to plan your strategy, whether that involves timing your case or looking for overlooked deductions.

As your Louisville Bankruptcy Attorney, I will personally:

  1. Analyze your income over the last six months to pinpoint the optimal filing date.
  2. Review every expense to ensure maximum deductions and the best chance of passing the means test.
  3. Help you complete the required credit counseling course and gather documentation.

We are here to listen and draft your petition correctly from the start. Call our Louisville office today at 502-625-0905 to schedule your consultation.

Expertise, Experience, Authority, and Trust

About Nick C. Thompson, Louisville Kentucky Bankruptcy Attorney

  • Expertise & Experience: Nick C. Thompson has been representing clients in Louisville, Lexington, and New Albany, Indiana, for over 30 years. He is focused exclusively on bankruptcy and foreclosure defense.
  • Authority & Trust: Unlike larger, high-volume firms, Nick C. Thompson personally spends a minimum of four to six hours preparing your petition. He never forwards you to an inexperienced junior attorney or paralegal. Our commitment to quality petitions results in less property lost, lower Chapter 13 plan payments, and more debt discharged for our clients. Nick C. Thompson is the author of the free Kentucky Foreclosure Manual