Means Test Bankruptcy Chapter 7 13

See the How to file for Chapter 13 and Chapter 7 Bankruptcy manual. 

The Means Test for Chapter 13  and Chapter 7 bankruptcy has two parts.   The Means Test also relates to Budget Schedules I and J.  In part one of the Bankruptcy means test, if your income is less than the average income for your household size you are presumed to be able to file a Chapter 7 bankruptcy in good faith.   If you earn more than the average income for your size family, you may be able to file a Chapter 7 bankruptcy if after deducting for reasonable  secured and necessary expenses, you cannot afford 185 dollars as a Chapter 13 payment that would repay 10% or more of your debt.  This 2010 amount increases with the cost of living.   The expenses for your Louisville Kentucky Bankruptcy are compared to other Louisville Kentucky Households.    Include normal expenses normal expenses such as haircuts, income taxes, property taxes and school lunches in any Chapter 13 plan.  

In the second part of a bankruptcy means test deductions health insurance, day care, communication and other expenses are allowed.  Many of the same deductions are allowed in your Schedules I and J Chapter 7 or 13  budget.  However, the means test uses the prior 6 months of income divided by 6 multiplied by 12 to determine your average income.   Schedules I and J attempt to use your present and future income, which should be similar to your prior 6-month income.   Deductions for 401k, charitable and private school expenses are allowed but a history of contributions must be documented to prevent cheating the means test.  Expenses must be reasonably related to income and your needs.   A 500,000 dollar luxury home mortgage payment as a means test deduction would not be allowed if your income is only 100,000.   A 250,000 or smaller home mortgage for that income probably would be.  High interest rate mortgages with negative equity may not be allowed since it may not be in the debtor’s best interest to keep those homes.  However, 800 per month for medicine would be allowed as a deduction if required by prescription and documented.  Many deductions have averages 60 per person for medicine 200 for food 250 per car for gas for 2010 etc. 

The means test does not apply to you if your debts are primarily business debts.  This exclusion for business income debtors encourages people to go into business and to take risks.  There is no similar reward for student loan debtors that are encouraged to take out student loans in hopes of a job that may or may not repay the loan later.  Similarly vacation rental and commercial mortgages can be modified to encourage investments while residential mortgages can not be.

Nick Thompson Louisville Kentucky Bankruptcy Attorney