To qualify for a Chapter 7 bankruptcy in Kentucky, a debtor must pass the “means test.” About 97% of all debtors qualify for a Chapter 7 bankruptcy. The means test has two parts. In the first part, you automatically qualify if your income is below the average income for your household size.
In the second part, you are still eligible if your reasonable and necessary deductions from your income do not leave enough to make a meaningful Chapter 13 payment. If all you have leftover is 100 dollars per month after expenses, you do not have a significant Chapter 13 repayment to benefit creditors.
So you can make more than the average income and still pass. The means test only forces the top 3% or so of wage-earners into Chapter 13. The means test averages your prior six months of income to calculate your annual income and qualify for a Chapter 7.
Chapter 7 has no debt limit. Only individuals can file a Chapter 13. Businesses cannot file a Chapter 13 and are limited to an 11 or 7. Chapter 13 has a 1.4 million dollar debt limit. But by filing an individual Chapter 7 or 13, your small business might not have to file bankruptcy.
Many small businesses can effectively reorganize if the owners file a Chapter 13 or 7. Both corporations and individuals may file Chapter 7. But only people who have less than 1.4 million in debt can file a Chapter 13. You can know more about the budget requirements of chapters 7 and 13 bankruptcy cases.
Qualify for a Chapter 7 Bankruptcy in Kentucky- Pass a “Means Test”
There are times when there is a purpose for Chapter 13, such as catching up on a mortgage or managing student loans and income taxes, which are not dischargeable. But you should never be talked into a Chapter 13 just because the attorney makes more money from Chapter 13 than Chapter 7.
The Reasons to File Chapter 13
- You may only file one Chapter 7 every eight years.
- Higher-income debtors with significant disposable incomes are required to repay.
- You need to protect a cosigner or keep a property.
- You need to stop student loan or income tax collections and abusive interest and penalty charges.
The means test amounts you can earn and still qualify for Chapter 7 are adjusted four times each year. As an example, the table below shows the income levels in Kentucky and Indiana for May 2021. However, each county has different average incomes.
Your income determination is from the prior six months of income divided by six and then multiplied by 12 to get the average annual income for the Kentucky bankruptcy means test. By lowering your income temporarily, such as filing while you are unemployed, back to school, or on maternity leave, you might be able to file bankruptcy Chapter 7.
To qualify, you can:
- Earn less than the amounts in the table directly below.
- Meet one of the exceptions.
- Or, your reasonable and necessary expenses leave you with no meaningful Chapter 13 payment.
|State||1 Person||2 Persons||3 Persons||4 Persons||5 Persons|
a⎆ Exceptions to the Means Test
The Kentucky bankruptcy means test is only a presumption your filing is or isn’t filed in bad faith. Some facts, such as a sudden disability, may allow you to file a Chapter 7 even if you fail the means test. Sudden changes in circumstances may make Chapter 13 not feasible. You only need to explain a reason that allows you to file, such as a recent retirement or sudden disability, to overcome this presumption. Your seasonable income may also be an excellent reason to prove the means test should not be a basis for you to be denied filing as a Chapter 7.
If over 50% of your debt is the business debt, you qualify under the second portion of the means test. Veterans who incurred most of their debt in service are also excluded from the means test. Income from Social Security, Veterans benefits, and disability are also excluded from the means test but are used in the budget income and expenses part of the petition.
I have met a Kentucky bankruptcy lawyer who brags that 95% of their clients file Chapter 13. About 70% of the cases filed nationally are Chapter 7 cases. Chapter 13 pays an attorney about three times the average Chapter 7 fee.
Make certain Chapter 13 is what benefits you, not your attorney. I have seen attorneys include disability as income in the means test to ensure they earn the higher fee from Chapter 13 cases. Chapter 13 must be affordable and serve your goals.
At the same time, bankruptcy requires debtors to file in good faith and uses their best efforts to repay. If the disposable income is there, the debtor must file a Chapter 13.
Even if your income is higher than the average family income, you may still pass the Kentucky bankruptcy means test. You can still file Chapter 7 bankruptcy if, after deducting for reasonable and necessary expenses, there is only $150 or less in disposable income left or if what is left pays back little to unsecured non-priority creditors. Debtors often forget expenses such as their annual car tags or daycare expenses. You still have child support, car insurance, and daycare expenses, even if you have not been able to afford them recently.
You qualify for filing a Chapter 7 bankruptcy if your budget leaves very little or nothing to repay creditors in a Chapter 13 bankruptcy. Under the means test, the U.S. Trustee may challenge your Chapter 7 if he shows that you have sufficient non-refundable income to afford a Chapter 13 payment. But the U.S. Trustee generally doesn’t challenge a case filed initially as a Chapter 13 with later conversion to a Chapter 7 after the debtor makes reasonable efforts to make it work and shows that his budget no longer can afford Chapter 13.
You can download these often-overlooked expenses, and there is also a list of the typical costs for the average budget. You are allowed reasonable 401k contributions, 401k loan repayment, and charitable expenses. But they look at what expense history you had before filing. You can include private school deductions for a child with a disability if you have a history of these past expenses. You may need to document medical or other expenses that are unusually high. School lunches, vacations, taxes, kids’ school activities, repair and replacement of household goods, pet care, haircuts, grooming, and yard care are also necessary expenses people often overlook.
⎆ Other Considerations for the Means Test and your Budget
1. Chapter 13 can include business debts.
People with mom-and-pop businesses often file a Chapter 13 and include their business debts. This may essentially allow their company to restructure without filing an expensive Chapter 11. Chapter 11 has a 95% failure rate. Chapter 7s are complete over 99% of the time, and Chapter 13 cases complete or convert to a Chapter 7 over 70% of the time. However, you can only file a Chapter 13 if the debts that are not secured are less than $419,275 and the secured debts are less than $1,257,850 in 2020 due to 11 U.S.C. § 109(e). This amount is also adjusted annually by the consumer price index, and congress may drastically increase the Chapter 13 debt limits in 2021.
2. Chapter 13 bankruptcy plans and modifications can be less expensive than Chapter 7
Kentucky Bankruptcy Court often approves Chapter 13 Bankruptcy plans which repay 10% or less to unsecured debts. If Chapter 13 strips your second mortgage, Chapter 13 may be cheaper than a 7. And Chapter 13 discharges more types of debt than Chapter 7. A Chapter 13 can lower the interest rate of your auto loan and stretch out a car loan. If the auto loan is over 910 days old, it can strip the secured part of the car loan to the value of the auto.
The Louisville, Kentucky Bankruptcy Court requires you to file an annual budget if your Chapter 13 plan is less than 100%. If your income changes, your plan payment may decrease or increase. Most of the time, your plan payment lowers. Filing annual budgets is not usually required in the Eastern District of Southern Indiana District. If your income falls, you might also be able to lower plan payments by supplying a budget with a simple motion to modify the plan for a lower payment.
Filing a Chapter 13 is often more affordable, has more significant benefits, and costs less than debt settlement. You also get the power of a federal judge’s court order. So, instead of begging the bank to accept a payment of 50% in the settlement, you can often force them to take 10% if that is all your budget can afford. A Kentucky Bankruptcy Chapter 13 requires you to pay what expendable income you have based on your budget, but that plan may repay zero to unsecured debts.
Expenses that Might Help for Means Test
Following are some ordinary expenses you might deduct from your actual list to pass a means test. It will help you a lot if you are spending on any of these expenses:
The secured payments are those that a creditor might have a record of and has a right to reclaim, such as a house or a car. Even if your mortgage house, personal property, or car payment is above the basic living standards, you can deduct it to pass the means test.
Technically, the means test looks at the entire amount a debtor must pay in 60 months following the Kentucky bankruptcy and average monthly payments. Therefore, if your mortgage or payment is payable within 60 months, only deduct the amount on average for 60 months.
2. Reduce Child Care Expenses
If you have children, you are probably spending more than you might need to do. Expenses for child care, including babysitting, daycare center, or preschool admission, can be delayed or omitted if you want to qualify for a Kentucky bankruptcy Chapter 7 means test.
3. Income Tax
You are obligated to pay the income tax from your income. However, you can stop the deduction of taxes to qualify for a means test. An experienced bankruptcy attorney can guide you accordingly in this matter.
4. Healthcare Expenses
If you pay for your health care bills and therapies (other than insurance policy), you’re more likely to cut these expenses. This is necessary for the welfare of yourself and the people who are dependent on you. If the amount you are spending on these expenses is more significant than the local standard, then you should cut some medical bills.
Some people are habitual of donating money on a regular basis, which is a great habit. However, if you are on the verge of bankruptcy, you should no longer make charity. Instead, reduce these expenses to qualify for the means test.
What if I Fail Means Test?
If you fail to pass the means test, that doesn’t necessarily mean you only have to apply for the Chapter 13 bankruptcy. You can also hold off a bankruptcy plan for a little while and prepare yourself for what to do next.
Remember, the list of finances and expenses you mention in your means test form determines your financial status for the previous six months. You can attempt the means test again after six months if you think you will be eligible for Chapter 7 bankruptcy after six months.
However, if you can’t wait for the next six months and want to file for bankruptcy, ask your bankruptcy attorney to file for Chapter 13 as that would be the only option left.
What Should I Do Next?
The next step should be to find the best bankruptcy attorney in Kentucky and go through a bankruptcy credit counseling course. You can also take a debtor education course to understand the bankruptcy details in depth. Alternatively, schedule a sitting with an attorney to examine your assets and possible scenarios.
Take your time and discuss all your thoughts with your attorney. We are here to listen to you and prepare your petition in your favor and protect you by using the bankruptcy code, Kentucky bankruptcy exemptions, and federal exemptions law.
Usually, it takes a single meeting to prepare a petition, but we still emphasize scheduling a second meeting to get to know more about your case and possible beneficial options.
Understanding More About Chapter 7 Bankruptcy
The absolute rule applicable in Chapter 7 bankruptcy is a priority of paying the debts. By implementing this rule, the unsecured debt is separated into categories and classes, with each class set based on preference.
However, the secured debt is secured or backed by the security to reduce the risks associated with the lending purposes such as mortgages, personal loans, and credit cards. You can inquire your bankruptcy lawyer about the details of secured debts.
Based on the priority given, unsecured debts are paid first. These debts include personal injury claims, tax debts, or child support against the debtor. Secured debts are paid in the last. The process of Kentucky bankruptcy Chapter 7 is followed through these steps:
1. Credit Counseling and Forms
Firstly, filers have to undergo a credit counseling course for six months to start with the Chapter 7 bankruptcy process according to the bankruptcy code. If you can’t find any approved counseling agency in your area, you may move to a further step. Other implications are also implemented depending on the debtor’s situation and circumstances.
Moreover, the applicant has to fill out certain forms, including a petition to the court, to start the Chapter 7 bankruptcy proceedings. The forms include the debtor’s creditor’s details, finances, personal property, assets, expenses, and income.
If you do not own any asset, then you qualify for the Kentucky Bankruptcy Exemptions which means your assets are lesser than defined according to the law. The entire process would become less complicated if you hire a professional bankruptcy attorney to help you out in this regard.
Once you have filed the petition in the court, the court prohibits the creditors from receiving the debtor’s debts, which is called Automatic Stay. This stay also stops the creditor from halts and wage garnishment directly from the bank account.
2. Meeting the Creditors and Appointment with Trustee
After the initial process, the court will appoint an unbiased trustee to analyze the entire Kentucky bankruptcy case. Furthermore, they will analyze the debtor’s assets to examine which of them can be utilized to pay the creditors.
Once the trustees analyze the assets, they arrange meetings with the creditors where the validity of mentioned assets and finances is confirmed. The meeting states the conversation between the trustees, creditors, and debtors to ask questions.
3. Repayment of Debts
The trustee of the bankruptcy case examines the personal finances and assets of the debtor to know the best possible way to pay the debts to the creditor. However, the property and assets necessary for a basic life are exempted.
The debtor’s nonexempt property is liquidated and seized by the court to pay the creditors. The exemptions associated with the property differ for each case depending on the scenarios. In many cases, the debtors are allowed to keep their home, car, and personal property to live with basic living standards. After that, the trustee looks into the liquidation of all the assets.
4. Remaining Debt Discharge
Many debts are discharged under the law of Chapter 7 Bankruptcy. The debt discharge will enable the debtor to get relief from any personal liability for payment. Once the deficit is released under the law of Chapter 7 bankruptcy, the creditor can never seek restitution in the future.
The obligations associated with the child support, alimony, specific government debts, federal student law, and income taxes are not allowed for release during the Chapter 7 bankruptcy. The law is stringent regarding discharging money for student loans and income taxes.
5. Serious Consequences
Some adverse circumstances are also associated with the Chapter 7 bankruptcy, which the debtor must be aware of. Sometimes, creditors claim to receive the money even after the discharge, even if they don’t have any right.
Moreover, the instance of bankruptcy will remain on your credit report for up to seven years, impacting your credit history. However, if you want to file a Bankruptcy wisely and make your petition strong, you are always welcome to hire our bankruptcy attorney.
Remember, don’t fall into the various bankruptcy frauds as there are numerous ways to trick the debtors. You can use our expertise of over 33 years to make your petition strong and protect your assets as much as possible. You can book an appointment with us immediately to get a free consultation regarding available opportunities.
We are putting our skills and experience together to help you qualify for a Chapter 7 Bankruptcy in Kentucky. Our bankruptcy attorney have been representing our clients in courtrooms for years now and understand what it takes to stand again with more financial stability after a bankruptcy. our bankruptcy lawyer can also guide you with the no-asset Kentucky Bankruptcy Exemption.
You may have to undergo a debtor education course to get the information about in what circumstances you must file for bankruptcy. Contact our team to schedule an appointment immediately. We will never forward you an inexperienced attorney. You are always guided and deal with the most experienced ones whether it is related to bankruptcy chapter 7 or 13 or debt settlement.
If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation—Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.