It is possible to earn a significant monthly income and still discharge most of your debts in a Chapter 7 bankruptcy. This is because the U.S. Department of Justice Trustee Program, which oversees bankruptcy cases, considers disposable instead of actual monthly income when determining eligibility. To qualify, you must pass the Means Test, which compares your average income over the past six calendar months, minus allowable expenses, with annually published median income figures for your state.
Allowable Expense Standards
Internal Revenue Service national and local standards specify maximum amounts for most allowable expenses. National standards apply to every state, while local standards vary by state and by location. Look for the most current national and local bankruptcy standards information on the U.S. Trustee Program website, or contact your local bankruptcy court to get this information. Use Form 22A -- Chapter 7 Statement of Current Monthly Income and Means-Test Calculation -- to record allowable expense data.
Standard Versus Actual Amounts
You can enter actual amounts for some expenses, but for others you’ll need to enter a standard amount based on your family size, regardless of how much you actually spend each month. For example, enter national standards for food, housekeeping supplies, clothing, personal care and miscellaneous expenses. As of March 2014, someone with a four-person family should enter $1,482 on line 19A of Form 22A. This amount includes $794 for food, $74 for housekeeping supplies, $244 for clothing, $70 for personal care and $300 for miscellaneous expenses.
Standard Expense Categories
Form 22A, Part V identifies allowable expenses used to calculate your monthly disposable income. These include food and household expenses, out-of-pocket health care costs, mortgage or rent payments, utilities, vehicle operating or public transportation expenses, vehicle loan or lease payments, life insurance, union dues, uniform expenses, court-ordered payments such as child support, some education expenses, and telephone and Internet expenses, including pagers, call waiting, caller ID and long-distance expenses.
In some cases, you can include additional expenses if you have documentation, such as an invoice or receipt, and can explain why the amount claimed is reasonable and necessary. These include health insurance, disability insurance and health savings account expenses. If your actual food and clothing expenses exceed the national standard, you can claim up to 5 percent of the additional cost. In addition, money you spend to support an elderly, chronically ill or disabled family member who is financially insolvent is an allowable expense.
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