Given the complexity of bankruptcy laws it’s not always easy to understand your bankruptcy options. Recently on our bankruptcy forum a user asked, “If I am single and live in Kentucky and I make $78,000 per year can I file a Kentucky Chapter 7 bankruptcy?”
Filing Kentucky Chapter 7 Bankruptcy
Unfortunately, not every bankruptcy filer will be able to file a Kentucky Chapter 7 bankruptcy and discharge their qualifying unsecured debts. Beginning in 2005, tougher bankruptcy laws were passed which made it more difficult to a receive Chapter 7 discharge.
If you are considering filing a Kentucky Chapter 7 bankruptcy the first step is to compare your income to the median income for a household of your size in Kentucky. If your income is less than the median income you can automatically file a Kentucky Chapter 7 bankruptcy. If it is higher, you may be able to file a Kentucky Chapter 7 bankruptcy but additional means testing will have to be done to see if you have sufficient discretionary income to repay your creditors.
If you cannot file a Kentucky Chapter 7 bankruptcy, however, you may still have the option to file Chapter 13 bankruptcy. Although this does not allow you to immediately discharge certain unsecured debts such as credit card debt, medical bills, and other unsecured personal loans, you may be able to create a 3 or 5 year debt repayment plan and repay a smaller portion of your unsecured debts.
Is my Kentucky income too high for a Kentucky Chapter 7 bankruptcy?
Now, let’s review the question again. Our debtor, let’s call him Clint, has an income of $78,000 and is wondering if he can file a Kentucky Chapter 7 bankruptcy. Unfortunately, for a one-person household in Kentucky, the median income is $38,356. Our debtor will not qualify for Chapter 7 bankruptcy. If, however, Clint had an annual income of $35,000 he would have automatically passed the means test because his income was below $38,356.
So what are Clint’s options? As mentioned above, he may choose not to file bankruptcy or he may file Chapter 13 bankruptcy.
Requirements before filing bankruptcy in Kentucky
What if Clint decides to file Chapter 13 bankruptcy? He will need to complete the proper bankruptcy forms, submit them to the proper bankruptcy court, and complete credit counseling.
Credit counseling must be completed in the six month period prior to the bankruptcy filing for debtors filing both Chapter 7 and Chapter 13 bankruptcy. It must be taken from a credit counseling which is approved by the U.S. Trustee in Kentucky. Prior to the bankruptcy discharge the debtor must also complete a debtor’s education course.
Benefits of Chapter 13 bankruptcy in Kentucky
So should Clint file Chapter 13 bankruptcy? Although Clint will not receive an immediate discharge of certain unsecured debts, Chapter 13 bankruptcy can be a great bankruptcy option for those who have higher incomes and want to protect their assets and their homes. Debtors may also be able to lower their interest rates on certain secured assets and pay a fraction of the amount they owe on certain unsecured debts. Chapter 13 bankruptcy can also eliminate creditor harassment and stop foreclosures and property repossessions.
Whether or not Chapter 13 bankruptcy is a good idea for Clint, however, will depend on his financial goals and whether he has other options to resolve his financial crisis.
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