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How does someone qualify for Chapter 7 bankruptcy?

On Behalf of | Jun 21, 2023 | Bankruptcy |

man and woman sitting at dining room table looking at bills

There are several different forms or chapters of individual bankruptcy, and each offers different benefits for a filer. Most individuals considering personal bankruptcy will choose between Chapter 13 and Chapter 7 proceedings. The kinds of debts someone has and also their income and assets may influence what form of bankruptcy they file.

However, it is often whether or not they qualify for Chapter 7 bankruptcy that decides what type of bankruptcy they pursue. In a Chapter 7 filing, people sometimes have to liquidate some of their non-exempt assets but will not have a repayment requirement before they are eligible for discharge. Most of the people who qualify for Chapter 7 bankruptcy will be able to exempt most or all of their assets from liquidation. If their filing is successful, it may only take a few months to secure a discharge of their eligible unsecured debts. To qualify for Chapter 7 bankruptcy, an individual must first pass a means test.

What does means testing involve?

Essentially, someone needs to compare their income with the median reported income of others with the same household size in their state. Therefore, the income amounts permissible after adjusting one’s income for certain expenses changes constantly. For those filing after May 15, 2023, in Kentucky, the maximum household income for a single individual is $55,971.

There are new financial limits announced multiple times each year as median income levels continue to change across the country. People hoping to file will need to ensure they have up-to-date means testing income limits and that they have properly adjusted their gross income.

What if someone isn’t sure if they pass?

Some individuals experiencing financial hardship are right on the cusp of qualifying for Chapter 7 proceedings based on their income levels and household size. Those who are very close to the means testing limit may benefit from having a discussion with an attorney familiar with Kentucky bankruptcy rules. There may be additional adjustments that could push their income down below the threshold currently recognized by the courts.

Understanding the rules that govern Chapter 7 bankruptcy in Kentucky may help those hoping to regain control over their finances to make an informed choice about which bankruptcy option is best suited to their circumstances.

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