The Means Test and List of Allowable Expenses for Arizona Bankruptcy
The 2005 Bankruptcy Abuse Prevention and Reform Act created a process called means testing to determine eligibility for Chapter 7 bankruptcy. The purpose of means testing is to ensure that those who are able to pay most or all of their debts over time do so while only those truly needing liquidation bankruptcy get the benefit of Chapter 7. For Arizona residents, means testing uses state, local and regional data from various sources to determine eligibility for Chapter 7.
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Current Monthly Income
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The first part of means testing is comparing your income with the median income in the state. Your current monthly income is determined by adding all your income over the previous six months from all sources, taxable and nontaxable, and dividing this figure by six. From this amount you can subtract the state and local deductions supplied by the U.S. Trustee for housing and utilities, transportation, health care and other necessary expenses. Generally, Arizonans use IRS data based on the west region, but those living in Phoenix use a separate list of allowances.
Transportation, Housing and Utilities
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The amount a bankruptcy debtor can for a vehicle is regional -- except for those Arizonans living in Phoenix, where the transportation deduction is $262. The regional deduction for Arizonans is $236. In 2011, the Supreme Court ruled that only those vehicle owners who are making loan or lease payments, not those who own their vehicles outright, can take this deduction. The amount that can be deducted from a debtor's income for housing and utilities is based on local data supplied by the IRS. For example, a household of one in Mohave County can deduct $999 for monthly housing and utilities while the same single debtor could deduct $1,301 in Coconino County.
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Other Necessary Expenses
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The IRS provides national deduction amounts for food, housekeeping supplies, clothing, personal care and miscellaneous items, which are used by all Arizonans. For one person, the total amount that can be deducted from your monthly income for these expenses is $526, but you cannot exceed the standard amount in any one category. For each category, you can deduct your actual expenses up to the standard amount. For certain kinds of other expenses, such as monthly taxes, mandatory payroll deductions, life insurance payments, childcare expenses and health care costs, you can deduct the actual amount without regard to standards.
Arizona Median Income
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The figure for the means test changes quarterly, but for cases filed in the quarter beginning on Nov. 1, 2010, the annual median income for a single family in Arizona was $41,915. This breaks down to a monthly income of $3,493. If your current monthly income, after allowable expense deductions, is less than this amount, you automatically qualify for Chapter 7 bankruptcy under the means test. For a family of two, the annual median is $54,510, for a family of $58,696 and for a family of four $66,030.
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References
- Internal Revenue Service: Arizona Housing and Utilities
- Internal Revenue Service: Transportation Standards
- Internal Revenue Service: Food, Clothing and Other Items
- U.S. Census Bureau: State Median Income
- Arizona Means Test: Overview of the Arizona Bankruptcy Means Test
- U.S. Courts: Chapter 7 Bankruptcy
Resources
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