For some expenses, such as your mortgage, car payment, taxes, health insurance, child care, and certain other items, you can deduct your actual costs on the means test. It should be noted that every state has different median income calculations. National Standards for food, clothing and other items apply nationwide. It’s also important to note that Chapter 7 bankruptcy isn’t always the right move just because you qualify for it. Compensation may factor into how and where products appear on our platform (and in what order). The process involves filling out one or possibly both forms below, and making calculations based on the information you input, to determine whether you pass the bankruptcy means test. Payments on priority claims like income taxes, child support, and alimony payments. 25. This is called a presumption of abuse. Means test opportunities. Rent is a standard deduction built into the means test. If that amount is high enough, you may be presumed to have too much income to qualify for Chapter 7 bankruptcy. and do not deduct any operating expenses that you subtracted from income in lines 5 and 6 of Form 22A–1. The ownership costs, shown in the table below, provide the monthly allowances for the lease or purchase of up to two automobiles. Availability of products, features and discounts may vary by state or territory. If you’re filing for bankruptcy with your spouse, the two of you may file a single Form 122A-1, though separate forms may be required in certain cases. If your expenses differ from month to month, enter the average expense. 5. Here is a table of all the median family annual income amounts effective starting April 1, 2016 for every state and territory in the United States. If your income is higher than the median income, you can then use certain expenses as deductions in order to reduce your income and hopefully pass the means test. Payments on secured claims, including loans for the purchase of real property, automobiles, and other personal property. Allowable living expenses include those expenses that meet the necessary expense test. For example, high-income debtors with a significant mortgage expense can sometimes pass the means test because of the ability to deduct this amount on the means test. If your expenses differ from month to month, enter the average expense. and do not deduct any operating expenses that you subtracted from income in lines 5 and 6 of Form 122A–1. If you have any questions about the form, you should reach out to a bankruptcy professional before signing it. Then, divide each source’s six-month total by six to get your average monthly income from that source. It's pretty simple, actually. This comparison takes place in Part 2 of Form 122A-1. In this article, we’ll go over what you need to know about Form 122A-1 and Form 122A-2. For example, high-income debtors with a significant mortgage expense can sometimes pass the means test because of the ability to deduct this amount on the means test. The means test considers credit card balances, payday loans, signature loans, medical bills, unpaid utility bills, and even unpaid income taxes. Add lines 6 through 23. Although you are not legally required to complete Form B122A-2, the "expenses" part of the means test, it will give you a sense of how a judge or trustee might view your ability to pay. For many types of expenses, the means test calculation lets you deduct the average of the actual amounts you expend for yourself and your dependents. You’ll also need to list any other types of income you receive. To fill out Part 2 of this form, you’ll need to provide detailed information about your debts and expenses. Even if you pass the Chapter 7 means test, you still may not qualify for Chapter 7 bankruptcy. If a taxpayer has no lease or car loan payment, the amount allowed for Ownership Costs will be $0. School expenses for minor children under 18 years (up to $137.50 per month per child) Sport or school activities for minor children * Voluntary retirement contributions and loan repayments to qualified retirement plans are typically allowed in Chapter 13 cases if reasonable in amount. Step 4: Determine whether there is a presumption of abuse. Ownership Expenses – Expenses are allowed for purchase or lease of a vehicle. It requires no registration or disclosure of personal information. Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. If your expenses differ from month to month, enter the average expense. Deductions in respect of income tax, VHI or similar health insurance premiums and travel expenses are not allowed. The operating costs include maintenance, repairs, insurance, fuel, registrations, licenses, inspections, parking and tolls (These standard amounts do not include personal property taxes). However, if your income is above the median, you don’t automatically fail, either. Although the positions that the United States Trustee’s office does not have the force of law, it can be considered a good guideline that we can use to determine if we will be challenged at the hearing. Whenever this part of the form refers to . Select Bankruptcy under “Court Type” and enter your ZIP code, and then click “Go”. 6. 5. Lower Your Tax Bill With FSA Pre-Tax Deductions, What You Need to Know Before Filing a Medical Bankruptcy, The Means Test - Overcoming the Presumption of Abuse, Out-of-pocket health care expenses (for under 65 and for over 65), Utilities, including gas, electric, water, heating oil, garbage collection, telephone, cellphone, internet, and cable. 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