Means testing
After the 2005 changes in bankruptcy law, many potential debtors have been concerned about not qualifying for a Chapter 7 discharge because of a high level of household income. While the median household income levels are an initial hurdle to be overcome in the process of discharging debts, means testing is an available option for families to avoid the presumption of abuse that would otherwise exist. Part V of the Chapter 7 statement of current monthly income and means-test calculation is the calculation of deductions from income and is the primary way for the higher-income debtor to qualify for discharge. Subpart A under this section are allowable federal tax deductions. These include national standards for food, clothing and other items and health care based on age seniority. The local standards under the tax deductions would include housing and utilities and non-mortgage, mortgage and rent expenses; transportation and vehicle operation/public transportation expense and transportation ownership/lease expenses for all vehicles operated by debtors. Even if you don’t pay a car loan, you would still have transportation expenses for gas, maintenance and insurance. The other necessary expenses under this subpart would be taxes; involuntary deduction for employment; life insurance; court-ordered payments; education for employment or for a physically or mentally challenged child; childcare; health care and telecommunication services. The last category would only be telephone or internet to the extent necessary for your health or welfare or that of your dependents. Subpart B of additional living expense deductions would include health insurance, disability insurance and health savings account expenses; continued contributions to the care of household or family members; protection against family violence; home energy costs; education expenses for dependent children less than 18; additional food and clothing expenses and continued charitable contributions while Subpart C of deductions for debt payment would include future payments on secured claims, other payments on secured claims and payments on prepetition priority claims. The last category includes the domestic support obligations of child support and alimony trustees usually ask debtors about at the creditors’ meeting. The total deductions from income in Subpart D allows the debtor to overcome the presumption of abuse even with an over-median level household income. Particularly when it comes to the median household income levels in your area as well as the local standards used for tax deductions, consulting with a qualified bankruptcy practitioner in your jurisdiction is vital.
