Posted on Monday, June 23rd, 2014 at 8:12 am
A debtor is required to list his or her current monthly income on the chapter 13 Means Test when filing for a chapter 13 bankruptcy. This is important because it allows for the calculation of both the debtor’s commitment period and the debtor’s disposable income. Additionally, due to the nature of the chapter 13 bankruptcy, it is sometimes beneficial to the debtor that his or her income be minimal rather than a greater amount, so it’s imperative that one know exactly what type of income needs to be listed. Consequently, knowing what deductions are allowed to be included in a Chapter 13 bankruptcy is just as crucial. Generally, the Means Test follows the same National Standards set forth by the Internal Revenue Service (IRS) in the Internal Revenue Manual to calculate the allowable living expenses for all applicable persons. The applicable number of persons is the same number that would currently be allowed as exemptions on a debtor’s federal income tax return, plus the number of any additional dependents whom that debtor supports.
The IRS Definition of Necessary Expenses…
“Allowable expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s and his or her family’s health and welfare and/or production of income. The expenses establish the minimum a taxpayer and family needs to live.” §15.1.7 at P 1,3.
- Food, Clothing, and Other Items – these generally include food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous. Taxpayers are allowed the total National Standards amount monthly for their family size.
- Healthcare – Calculated by using the number of applicable persons and the IRS National Standards for out of pocket health care.
- Housing and Utilities, Mortgage/Rent Expenses – Calculated by using the IRS Housing standards for the taxpayer’s county and family size. Housing expenses generally include mortgage (including interest) or rent, property taxes, necessary maintenance and repair, homeowner’s or renter’s insurance, homeowner dues, etc. Utility expenses include gas, electricity, water, heating oil, bottled gas, trash and garbage collection, phone and cell phone expenses, etc.
- Transportation, Vehicle Operation/Public Transportation Expenses
Calculating all these expenses is a rather convoluted process, as well as another reason why it is so important to consult with a Northern Kentucky bankruptcy attorney when considering filing for bankruptcy in Northern Kentucky.
If you or someone you know need(s) to file for a chapter 13 bankruptcy in Northern Kentucky, contact Lawrence & Associates today!
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