Chapter 7 bankruptcy is more desirable than chapter 13 for many people because the process is faster and all of your eligible debt is discharged. However, chapter 7 bankruptcy is reserved for those people who can show dire financial circumstances. This means that either half of your debt must be classified as non-consumer debt, such as medical bills or business debt, or you have to pass what is called a means test.
The means test varies from state to state and calculates whether your current income can reasonably cover your expenses and allow for you to repay all or part of your debt. If it is determined that you can pay back some or all of your debt without suffering severe hardship, you will not be eligible for a chapter 7 bankruptcy. That is why it is important for you to understand all of the expenses you are allowed to deduct during the means test.
Ongoing Charitable Donations
If you make regular donations to a charity or church, you can claim them as deductions in order to qualify for chapter 7 bankruptcy. However, you must be able to show proof that you regularly make these contributions, and they should not increase suddenly just before you file for bankruptcy.
Re-Certification Required For Employment
Unfortunately, most college tuition does not count when you are taking the means test. However, if you can prove that you are taking courses to maintain your current employment, you will be able to deduct that part of your education costs. This can include certification courses as well as professional development courses, as long as they are required by your employer.
Court Ordered College Tuition For A Child
In most cases, you can only count the cost of your children's school if they are under 18. However, if you have been court-ordered to pay your child's college tuition, you can also deduct the court-ordered portion of your contribution to your adult child's education.
Family Medical Expenses
Most large hospital bills are considered non-consumer debt, because medical treatment is considered necessary as opposed to an optional lifestyle choice. For this reason, large medical bills may qualify you for chapter 7 bankruptcy without the need to take the means test.
However, if you have small, recurring medical expenses including treatments, prescriptions, and various types of therapy, you can use these recurring payments to reduce the amount of your discretionary income during the means test. Furthermore, if you pay for any medical treatment for your parents, grandparents, children, grandchildren or other relatives who live with you, these expenses can also be deducted.
Health Insurance
Most health insurance or payments into a health savings fund can be deducted from your income during the means test. Because of this, it is a good idea to get a comprehensive medical insurance before you file for bankruptcy. However, if your premiums are considered unnecessarily extravagant, they may be reduced during final calculations.
Student Loans
Student loans very rarely get discharged during bankruptcy, which means that they are a recurring necessary expense that you can deduct from your income during the means test. Currently, there are many types of income based repayment plans offered for student loans. If you can, it is best to stay on a traditional repayment plan with larger monthly payments until after your chapter 7 bankruptcy is discharged.
Unreceived Child Support
Many people assume that they have to include child support in their total income when completing the means test. However, you only have to include the child support that you have received. If you regularly do not receive child support payments, a judge may assess your petition and reduce the amount of child support you have to claim as an income.
The best way to make sure you pass the means test and are eligible for a chapter 7 bankruptcy is to consult with a lawyer and have legal assistance while filling in the necessary forms.
