This is the second half of an article on “How to complete the Chapter 7 bankruptcy means test without a Nebraska Bankruptcy Attorney”.
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If you failed the provisions outlined in the first half of the article, there is still hope of passing, however, it requires legal knowledge and exceptional analysis.
As I’ve stated previously, it is not advisable to prepare a consumer bankruptcy petition without the legal knowledge in your back pocket. You’re best option is to hire a really good Nebraska bankruptcy attorney who can analyze your unique situation to the nearly static requirements of the bankruptcy means test.
This article is also a part of my ongoing series on How to File Chapter 7 Bankruptcy Without a Nebraska Bankruptcy Attorney”. Learn more about different aspects of a chapter 7 bankruptcy filing.
When we left on from the previous article, you either passed the first part of the bankruptcy means test or you didn’t. This article continues with Part V of the bankruptcy means test Form 22A, which deals with deductions to income.
You can best understand this portion of the bankruptcy means test as taking your current monthly income and subtracting monthly expenses to determine whether there is any disposable income left for creditors. The problem is that Congress only allows the subtracting of necessary expenses and further only allows the subtraction of certain necessary expenses based on standards as determined by the Internal Revenue Service and others based on your actual monthly expenses. Confused yet?
Another Disclaimer: This article does not take into consideration if a debtor is a soldier, on social security assistance, has special circumstances, owns a business, is separated from a spouse, lives with others not related, or has dependents that do not reside with him. If any of these circumstances applies to you, get a bankruptcy lawyer.
Deductions to Income
You’ll need to visit the U.S. Trustee’s website to gather the information required to fill out Lines 19A, 19B, 20A, 20B, 22A, 22B, 23, 24, and 45. These are your standard deductions based upon I.R.S. standards.
For Lines 25-32 and 34-44, you will put in your true expense figures. Be careful to review the instructions. Some lines limit the amount you can claim without regard to your actual expense, some require that you exclude certain forms of expenses, and other require you to average out the expense.
Specific Deductions for Vehicles & Transportation on Lines 22-24
If you have any paid off vehicles and/or vehicles older than 6 years with more than 75,000 miles, you should contact a Nebraska bankruptcy lawyer. There may be circumstances where you are not entitled to take a deduction for these lines of the bankruptcy means test.
Additionally, if you have vehicles with loans that are more than 2.5 years old, you should hire a Nebraska bankruptcy attorney to determine whether you would save more money by filing for Chapter 13 bankruptcy.
Specific Deductions for Debt Payment on Lines 42-44
You are entitled to take a deduction for payments required for secured and priority claims. You only deduct an amount if you intend to keep the property. If you intend to surrender the property, you cannot make these claims.
On Line 42, you enter the amount you pay for secured property that you intend to continue paying and possessing after the bankruptcy. These are items like your home, vehicles, and other personal property with a lien against it. Follow the directions because it doesn’t ask you to input the regular monthly payment, but the amount due within the next 60 months divided by 60.
On Line 43, you are allowed to deduct 1/60th of the amount needed to “cure” or repay any amount you are behind on secured property that you want to keep. You would divide the amount owed by 60 for each claim.
On Line 44, you can deduct 1/60th of the amount you owe on what are considered priority unsecured claims such as child support, alimony, and taxes. This is used for support or taxes you are behind, you would not use this line if you are current on support and taxes.
Line 45: Administrative Expenses
This article doesn’t analyze whether you are entitled to deduct administrative expenses or how much to deduct. If you do not pass the bankruptcy means test, you should consult with a Nebraska bankruptcy attorney to determine whether it is applicable and whether it will help you qualify for Chapter 7 Bankruptcy.
Determining Whether the Presumption Arises
The bankruptcy means test mentions a “presumption” on several occasions, but doesn’t really state what it means. The bankruptcy means test is a test to determine whether a Chapter 7 filing would be an abuse of the bankruptcy code. An abuse, as indicated by the bankruptcy means test, determines whether you qualify for Chapter 7.
So when it asks whether the “presumption arises” or the “presumption does not arise”, it really means whether a presumption of abuse arises or not.
Line 52 is the initial presumption indicator. Subtract all of these deductions from your current monthly income and multiplying that by 60. If the amount is less than $7,025 (this amount changes every 3 years starting in 2013, so verify the amount is current for the date you intend to file), the presumption doesn’t arise. You are done!
If the amount is more than $11,725, unfortunately the presumption arises, and you should consult with a Nebraska bankruptcy attorney to review your work to make sure it is correct or review your options under a Chapter 13 bankruptcy.
If the amount is between those figures, you need to move onto the secondary presumption determination.
Multiply your general unsecured debt (You’ll figure this out when you complete the section listing your creditors and debt) by 0.25. If that amount is less than you calculated on Line 51 when determining your disposable monthly income, the presumption does not arise. If it is equal or greater then you have not passed the means test. The presumption arises.
Conclusion
The bankruptcy means test is a beast. That’s why I tackle it first when I am hired by a new client. Again, if any portion of the test is questionable, you should hire an attorney. It is not worth messing up this test and having your bankruptcy dismissed. If you are too worried about making sure the means test is correct, contact me and schedule an appointment. I can review your situation and see whether you qualify for Chapter 7 Bankruptcy or determine if another option is in your best interests.
The next article in the series will deal with listing your creditors on Schedule D, E, and F.