The means test of Chapter 7 bankruptcy

Chapter 7 bankruptcy is one of the two main personal bankruptcy options that Kentucky residents may utilize to eliminate their overwhelming debts. Unlike Chapter 13 bankruptcy, however, Chapter 7 bankruptcy requires filers to have a sufficiently low income in order to qualify. While under Chapter 13 bankruptcy, a debtor may use their income to pay down their financial obligations, under Chapter 7 bankruptcy, they must liquidate their assets and property in order to garner funds for the repayment of their loans.

Therefore, in order to qualify for Chapter 7 bankruptcy protections, a person must pass the means test. The first part of the means test requires a person to compare the average of their prior six months of income to the median monthly income of their state. If their income is equal to or below that median amount, then they have passed the means test.

If, however, their income is above the state's median amount, then the filer must go onto the second part of the means test. Under the second part of the test, the filer must tally up all of their allowed expenses and compare it to their income. If, after paying all of their allowed expenses, they do not have enough income left over to pay off some of their unsecured debts, then they may qualify for Chapter 7 bankruptcy.

If a person does not qualify for Chapter 7 bankruptcy under the means test, then they may still qualify for Chapter 13 bankruptcy. It is, therefore, important that individuals considering bankruptcy discuss their financial situations with professionals who can properly advise them of their rights, options and alternatives.

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Sheehan, Barnett, Dean, Pennington, Little & Dexter, P.S.C.
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