If your income exceeds the median income for a same size household in your state, you will need to use your expenses on the means test to qualify for Chapter 7 bankruptcy. While the means test limits the amount you can deduct for many expenses, you can use the actual amounts you spend for certain expenses. Read on to learn more about which expenses can help you pass the means test and qualify for Chapter 7 bankruptcy.
For more information on how to complete the means test, see our Chapter 7 Means Test topic area.
For many types of expenses, the means test only allows debtors to deduct certain predetermined amounts based on what an average person or family would spend on those expenses. In most cases, the means test uses IRS local and national expense standards to determine its deduction amounts.
In many cases, these expenses will help you pass the means test since they account for housing, transportation, and other types of daily living expenses.
These predetermined expense amounts are updated periodically. You can find the most up-to-date figures (as well as each state’s median income information) on the U.S. Trustee’s website at www.justice.gov/ust under “Means Testing Information.”
If your income is above the state median, you may still be able to qualify for Chapter 7 bankruptcy if your expenses leave you with little or no disposable income. The most common expenses (in addition to those with predetermined amounts discussed above) that can help you reduce your disposable income and pass the means test include:
Taxes. You can deduct your actual monthly tax obligations on the means test. This means that if you typically owe taxes when you file your returns, you can take that additional liability into account when calculating your monthly tax expense.
Mandatory employment expenses. If you have mandatory expenses related to your job such as uniform fees, union dues, or required contributions to a retirement account, you can claim these expenses on the means test.
Certain insurance expenses. The amounts you spend on health, disability, or term life insurance reduce your disposable income on the means test.
Secured debt payments. Payments you make on secured debts such as your mortgage or car loan may be able to help you pass the means test if your monthly payment amount is more than the standard housing and vehicle ownership expense deduction. But be aware that the means test only allows you to deduct the average monthly payment you will be required to make during the next 60 months (five years). This means that you can only deduct your actual monthly payment for loans that will not be paid off in the next five years. Otherwise, you must use the 60-month average.
Court-ordered payments. If you are required to make payments pursuant to a court order (like monthly alimony or child support payments), you can include them on the means test.
Expenses related to childcare. If you have to pay for babysitting, preschool, day care, or other related expenses, you can deduct them on the means test.
Health care expenses not covered by insurance. If you have out-of-pocket health care expenses in excess of the IRS national standard, you can deduct your increased expenses on the means test.
Certain educational expenses. If you incur educational expenses for the benefit of your disabled child or as a requirement of your job, you can include them on the means test.
Charitable contributions. If you make charitable contributions on a regular basis, you can deduct your continuing contributions on the means test. But keep in mind that you must demonstrate a history of making these ongoing contributions.
Contributions related to the care of an elderly, disabled, or chronically ill member of your household or family. If you contribute to the care of any elderly, ill, or disabled family or household members and expect these contributions to continue, you can deduct them on the means test.
Other necessary expenses. You can deduct any other expenses necessary for you and your dependents’ health and welfare. But you have to explain to the court why these expenses are necessary and should be allowed.