What Expenses Can Help You Pass the Bankruptcy Means Test?

Certain family and household expenses might help you pass the means test for Chapter 7 bankruptcy.

by: , Attorney

If your income is higher than your state’s median income for a similar size household, you must complete the entire bankruptcy means test form to determine whether you qualify for Chapter 7 bankruptcy. For many expenses, the means test only allows debtors to deduct certain predetermined amounts based on IRS local and national standards. But you can still deduct some of your actual expenses to help you qualify. Read on to learn more about the expenses that can help you pass the means test.

For more information on how the means test works and the role it plays in Chapter 7 bankruptcy see, The Means Test and Other Eligibility Issues in Chapter 7 Bankruptcy.

Expenses With Predetermined Amounts

For some of your expenses, you'll be required to use dollar amounts determined by IRS local and national standards. To find these, visit the website of the U.S. Trustee at www.doj.gov/ust and choose "Means Testing Information." Here you'll also find the most up-to-date state median income figures by family size.

Expenses That Can Help You Pass the Bankruptcy Means Test

If your income is less than your state’s median income for a household of the same size, you automatically pass the means test without having to do further calculations relating to your income and expenses. But if you have above median income, the following are some of the most important expenses that can make the difference between passing the means test or not.

Tax obligations. The means test allows you to deduct your actual tax obligations from your income. This means that if you have a large tax liability each year, it can help you qualify for Chapter 7 bankruptcy.

Involuntary employment expenses. If you have deductions from your paycheck that are required by your employer such as union dues, uniform fees, or mandatory retirement contributions, you can deduct the actual amount of these expenses on the means test.

Health, disability, or term life insurance. You can deduct the actual cost of your medical, disability, or term life insurance coverage on the means test.

Mortgage, car loan, and other secured debt payments. If your average monthly mortgage or car loan payment is greater than the IRS standard housing or car ownership allowance, you can deduct the higher amount on the means test. But keep in mind that the means test calculates your average monthly payment by looking at the amount of contractually required payments that are due in the next 60 months. This means that your average payment for means test purposes will be lower than your actual monthly payment if your loan will be paid off in less than five years. Because car loans have shorter repayment periods, this issue arises more frequently in car payment deductions. (To learn more, see The Car Ownership Deduction and the Bankruptcy Means Test.)

Payments required pursuant to court order. If you have to make any court-ordered payments (such as alimony or child support), you can deduct those amounts on the means test.

Childcare expenses. If you have expenses related to the care of your children for day care, nursery, preschool, or babysitting, you can use them on the means test to reduce your disposable income.

Out-of-pocket health care expenses. If you have health care expenses (not covered by insurance) that exceed the IRS national standard allowance, you can deduct them on the means test.

Educational expenses required for employment or a disabled child. You can deduct your educational expenses that are required as a condition of your employment or needed for your physically or mentally disabled child.

Continuing charitable contributions. If you have been making regular charitable contributions prior to filing your case and you expect to continue, you can deduct them as an expense. But keep in mind that you typically have to show a history of making charitable contributions in order to deduct them on the means test.

Continuing contributions for the care of a chronically ill, elderly, or disabled family or household member. You can deduct your continued contributions to the care of a chronically ill, elderly, or disabled member of your household or family on the means test.

Other expenses necessary for your health and welfare. If you have any additional expenses needed to maintain you and your family’s health and welfare, you may be able to deduct them on the means test. However, you must describe and explain any special circumstances relating to why these additional expenses should be allowed.

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