Common Means Test Questions for Chapter 7 Bankruptcy
Read through our chapter 7 means test FAQ and get answers to your common questions about the test.
All debtors who wish to file a Chapter 7 bankruptcy must first pass a means test to see if they have too much income. If the debtor fails the test then he/she must file for Chapter 13 where all the secured debts and some of the unsecured debts will have to be paid.
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For some debtors, Chapter 13 may be the best option. For many debtors, Chapter 7 is the best chance to stop harassing calls from creditors to get a fresh start. The means test is a complicated formula that usually requires the help of a bankruptcy lawyer. These are some of the common questions debtors ask:
- • How do my children count in the means test?
- • Why does the location where I live matter?
- • Is all my income included?
- • What if I don't pass the income means test?
- • What expenses are allowed in the means test?
- • Am I penalized if I don't use a vehicle?
- • How are family support obligations valued?
- • What is the Marital Deduction Adjustment?
- • What about college tuition and other school expenses?
- • What about life insurance?
- • I help my elderly mother. Can I deduct the cost of caring for her?
How do my children count in the means test?
The size of your household determines how much income you need to qualify for Chapter 7. The larger the size of the family, the better chance a debtor has to qualify because the income figure is higher. Children under the age of 18 should qualify. Adopted children usually qualify too. The problem gets harder if the child is over the age of majority or if stepchildren are involved. It's especially hard if the child lives away from home for part of the year. Top
Why does the location where I live matter?
Different regions of the country and a state have different average income levels and different expenses. Some plush suburbs have people who make millions of dollars and live in expensive homes. People in very poor cities may not work at all and the costs can be very low. Fairness dictates that people be judged where they live. Top
Is all my income included?
Most of your income will figure into the income figure. If you earn money or income, then the bankruptcy court wants you to use the income to pay your bills. The main exception is for retirees who have Social Security income and people who get Social Security disability income. Top
What if I don't pass the income means test?
If your average income level is above the median for your location and family size, you can still qualify. Income is the first test. The second test is your income after legitimate expenses are considered. Legitimate expenses include home, food, car, insurance and other expense to live reasonably but not luxuriously. Top
What expenses are allowed in the means test?
Your mortgage and any secured debts are allowed because they have to be paid in a Chapter 13 bankruptcy anyway. Since you need to eat to survive, food expenses are an obvious allowance. Expenses required by your work are included. Health insurance and disability insurance count too. Expenses to care for an elder person or another person may qualify too. For a full list, consult with your bankruptcy lawyer who will compare your expenses with the federal statute. Top
Am I penalized if I don't use a vehicle?
If you own a car and it's secured, then you can deduct the full monthly payment. If you lease a car, you can deduct the car payment. In some cases, you can only use the allowed average monthly amount - currently about a little over $500. If you don't own or lease a car, then you can't deduct the car expense. If you need to take public transportation to get to work, then you should be able to deduct the public transportation cost. Top
How are family support obligations valued?
If you get income through a court order, then that amount is added to your income figure to determine your means test eligibility. If you pay child support or alimony through a court order, then you can deduct the amount of that order in the second phase of the means test. The second phase is for a debtor who has too much income but may qualify because they have a lot of legitimate expenses. Top
What is the Marital Deduction Adjustment?
This is for couples who are married. If the couple is separated and living separately, then the spouse's income isn't considered in the income figure. But if the spouses are living together, then the income of the spouse is added to the debtor's spouse's income. The Marital Deduction Adjustment allows the debtor to deduct from the spouse's income the expenses for the spouse.
This can include (your bankruptcy lawyer will guide you) items like payroll deductions, car payments, insurance expenses, court-ordered payments for another spouse or other children, student loan debts, business expenses, legal fees and other items. Deducting these expenses can mean the difference between qualifying for Chapter7 and not qualifying. Debtors should be sure not to double deduct their spouse's expense in the debtor's expense calculations. Top
What about college tuition and other school expenses?
Generally, students can't use bankruptcy to avoid paying their school loans. So college tuition is not an allowed expense for the means test. Parents, though, can deduct some education expenses for their children especially if they have special needs. Education expenses to stay employed can usually be deducted such as continuing education requirements. Top
What about life insurance?
This is one area where a debtor may be able to deduct an expense that may not seem essential. The bankruptcy court does distinguish between term life insurance which is cheaper and has less value and whole insurance which is more costly and has more value. Whole life insurance can't be deducted. Term insurance might be eligible for a deduction for the debtor who files. Top
I help my elderly mother. Can I deduct the cost of caring for her?
If the debtor means a number of tests, medical expenses for an elder person may be eligible for deduction. The elder person must be a "qualified" relative such as a parent. The elder person has to be unable to pay himself/herself. The bills must be reasonable and medically necessary. They should be for chronic long-term conditions. Top