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Understanding the "means test" under Chapter 7

Kentuckians who file petitions under Chapter 7 of the United States Bankruptcy Code usually expect to have all of their debts discharged by the bankruptcy court at the close of the proceedings. However, persons who look to Chapter 7 to eliminate their debt do not always understand that they may be required to meet a threshold that requires them to submit their monthly income and expenses to the court for review before they are eligible for a Chapter 7 discharge. This test is commonly called the "means test."

The means test is required only for debtors whose income is more than the Kentucky median income. Persons whose income is less than the statewide median are automatically eligible for a Chapter 7 discharge. The means test requires the debtor (or both debtors if the filing is joint) to submit a statement averaging the person's income and expenses over the last six months and multiplying the result by 12. The resulting annual income is then compared to a table of income levels to determine Chapter 7 eligibility.

Debtors must disclose virtually all of their income. Expenses come from several sources. Some are derived from statistics prepared by the Census Bureau and the Internal Revenue Service. Some actual expenses, such as medical bills, may also be deducted. If a person's total monthly income over next 60 months is expected to be less than $7,475, the person is eligible to proceed with the Chapter 7 proceeding.

Passing the means test does not necessarily mean that a person should seek a Chapter 7 discharge. Many factors can affect the choice between a Chapter 13 and a Chapter 7 proceeding. A person considering bankruptcy may wish to review this important choice with an experienced bankruptcy attorney for advice on the differing effects of Chapters 7 and 13 and potential outcomes.

Source: Kentucky Bankruptcy Law, "Kentucky Bankruptcy Means Test," accessed on April 22, 2017

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