Estimating Living Expenses
When you file bankruptcy, you are permitted to estimate certain living expenses and retain a portion of your income or assets to pay for those expenses. Bankruptcy courts take the position that you should be able to pay your rent and utilities as well as have money for food and basic necessities. Therefore, it is important to understand how to estimate these expenses accurately before filing your case. Estimating these expenses too stringently will result in you not having enough money to meet your needs, while estimating them too generously can cause you to have problems with the bankruptcy judge or trustee. Furthermore, estimating your expenses accurately is critical if you are on the line between qualifying for a Chapter 7 bankruptcy or failing to qualify due to high income.
The Means Test and Expenses
In certain cases, your expenses may help you pass the means test. The means test is a way the court has of determining if you qualify for Chapter 7 bankruptcy. Even if your income is too high for you to file Chapter 7, you may still qualify if you can deduct certain expenses. These expenses include:
- If you are working, you should deduct your tax obligations from your overall income.
- Involuntary deductions. If you are required by your job to pay certain fees such as dues, uniform costs or mandatory retirement plans, deduct these costs from your gross income as well.
- If you have health, life or disability insurance, you can usually deduct these expenses. However, not all insurance payments are deductible; for example, whole life policies may not be considered in the same light as term life policies. Be sure to check with your bankruptcy attorney on which premiums may be deducted.
- Secured debt payments. If you have payments on your home or car, you may be able to deduct these. However, there is one important thing to remember: you can only deduct the average of what you would pay over a 60-month term following your bankruptcy. Therefore, if your car will be paid off in 24 months, you must average the payments over a 60-month period rather than use the actual payment amount.
- Court-ordered payments. If you are required to pay domestic support, you can deduct these amounts as part of the means test.
- Child care. If you pay for child care, you can use those amounts as a deduction.
- Out-of-pocket health care expenses. If you incur excessive health care costs, you may be able to deduct these in addition to your health care premiums.
- Education for employment or a disabled child. If you have paid expenses related to education to secure employment for you or a disabled child, you may be able to deduct these costs.
- Charitable contributions. If you have made regular charitable contributions to any organization, such as tithing to your church, and you intend to continue making these payments, you may qualify for a deduction.
- Care of elderly and disabled. If you help to support an elderly or disabled family member, those amounts may be deductible.
If you want to file Chapter 7 bankruptcy, talk to an experienced bankruptcy attorney about your options. You may be able to file Chapter 7 even if your income does not meet the standard for the means test. Call the Oswalt Law Group in Phoenix today for more information.