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Sep 2011Bankruptcy means test: how big families can pass
Posted by Robert Weed / in General Information About Bankruptcy Law, The 2005 Bankruptcy Law / 12 comments
The 2005 bankruptcy law is unfair to families. If you have children, you need to fill out your bankruptcy means test budget very carefully. Here’s why.
The means test in the 2005 bankruptcy law is easy on singles, and hard on big families. Here’s an example: a household of one is allowed $300 for food. A family of four is allowed $757. That’s ten dollars a day to feed the first person in the family–$5.07 a day each for the next three. (When you go above four, it drops to $4.80.)
Congress set this up so that just trying to take care of your kids is called bankruptcy “abuse.”
There’s not much we can do about the unfairness of what the bankruptcy law allows for food and clothing. But, other things you spend money on for your children, you are allowed to claim your real cost.
Those are the areas where you need to focus when you fill in your bankruptcy means test budget.
Child care. Most families pay for child care by the week. And then multiply by four to calculate the monthly. But you should multiply by 4.333. Because there are more than twenty eight days in a month–usually thirty or thirty one. So don’t short yourself. Budgeting those extra three days could be the difference between having your bankruptcy approved and having it turned down.
Besides pre-school or after school care, budget for baby-sitting. Most families, maybe once a month, both mom and dad have to go somewhere, together, and you need a sitter. That twenty bucks or so goes in your bankruptcy means test budget, too.
Do you send the kids to summer camp? That’s child care–and goes into your child care budget.
Are the kids lagging in school? Let’s make sure we take advantage of that. (In bankruptcy everything is upside down–bad is good; good is bad.) So having trouble in school is an advantage in bankruptcy.
Kids struggling in school? Money for tutoring is allowed in your bankruptcy means test budget.
You are allowed to budget $125 per month to pay for schooling. Now if the kids are in full time private school, at $125 a month doesn’t begin to cover it. But if the children need tutoring to get through a tough class–or need to pay for summer school to catch up–that could be that $125 per month you are allowed in your bankruptcy budget.
(This schooling budget only covers kids up through age 17. Congress says they are on their own for college.)
Are the kids having big trouble in school? If the children are “challenged,” then the $125 per month cap doesn’t apply. Your bankruptcy budget for education for employment of physically or mentally challenged children is unlimited. (And goes past age 18, too.)
I see some parents who put their kids in private school because they couldn’t handle the public schools. In that case, you can claim that whole expense.
Health and medical. The bankruptcy means test allows you $60 per person for health and medical expenses. Most people think they spend a lot less–but actually spend a lot more.
A lot of what you think of as grocery money can actually be counted at health care. And for healthcare, unlike groceries, you can claim above the allowance.
Let’s start at Walgreens or CVS. Vitamins–that’s health care. Tylenol, allergy medication–health care. Shampoo and toothpaste goes in the grocery budget–but anything stronger is health care. Does your dentist recommend Listerine–that’s healthcare.
Lots of families are spending $20 or more per person on over-the-counter stuff that you can claim in your health care budget.
Prescriptions. Should be obvious, but don’t leave it out.
Glasses or contacts. According to the Vision Council of America, approximately 75% of adults use some sort of vision correction. I’m spending over four hundred dollars a year–thirty five dollars a month–on glasses. Your children may be spending more–because they lose or break them.
The dentist. Just routine dental check ups can cost a couple hundred dollars a year. Maybe half the people I talk to about bankruptcy tell me they are avoiding the dentist because they can’t afford what it will cost. Budget that in.
You are allowed to claim the dental work you’ve been putting off as health care.
Braces. Approximately 4 million people are in braces in the US at any one time. Orthodontics can cost a couple hundred dollars a month. If the children need braces, put it in your budget.
Runny noses and broken arms. In addition to preventive care, children (and adults) catch cold and flu, break their arms, and end up at the doctor’s one way or another. Allow something for the unexpected in your bankruptcy health care budget.
Mental health. A Gallup-Healthways Well-Being Index survey conducted in 2009 revealed that about 40 million American adults had recently been diagnosed with depression.
When life knocks you down, there can be changes in the chemistry of your brain. People need help–counselling or medications or both–to get back to their right mind. Things that caused your financial problems–unemployment, break-ups, other health problems–can also bring on depression.
If depression is impacting your family, be sure to add that to your health care budget. (And be sure to take care of it, too.)
Don’t forget these categories
Charitable giving. Most people have a good handle on what they give to their church, their favorite cause, or other regular commitment.
But if you have children (or even if you don’t), you get hit for donations for Girl Scout cookies, the high school band, and that kind of thing. I’m guessing most families spend at ten dollars a month on these neighbor-to-neighbor charities.
Elderlies. Along with the family in your home, many of us are helping out parents or grandparents. One of the very few good changes in the 2005 bankruptcy law, help for elderly (or disabled) family members is now expressly ok. (This includes family overseas.)
To get your bankruptcy approved, we need to show the court where you need to spend your money. People who come to talk to me about bankruptcy have been living from paycheck to paycheck–usually for a long time. But they are often so stressed, they really don’t know where the money has been going.
I hope this article helps you think clearly about your budget–so we can get your bankruptcy approved.
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Robert Weed has helped fifteen thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.
Vicky Carey
I work for Robert Weed and see too many clients that severely underestimate their medical care on our budget sheets. “Bloomberg Business Week” says that over 40% of Americans do NOT get the prescriptions they need or the medical procedures they really need to get healthier. You can read more about it at: http://www.businessweek.com/news/2011-09-27/more-americans-say-they-re-skipping-medical-care-to-save-money.html. I find that if you just write down a monthly amount on our forms, you will come up with a much lower (and inaccurate) amount than if you really take the time to think about ALL of your medical needs – especially the future ones the doctors are tellling you about, that you’ve been putting off.
Bo Regard
Thank you so much for a truly informative website – as opposed to the bankruptcy mill come-ons!
I’ve tried and tried to find a definitive answer as to what a household is. I’m in Greensboro, NC, so I realize you may not be able to answer except for Federal provisions.
As an example, Medicaid in NC considers the total income of everyone living in the house, divided by the number of people. So moving in with a relative who’s doing OK can disqualify you, even if they never intend to pay a cent of your healthcare bills.
For bankruptcy, how is this handled?
And do you know a lawyer with your values and expertise in Greensboro?
Robert Weed
Bo:
the 4th Circuit–the big guys between us the the Supreme Court, for Maryland on thorugh SC–say that the best test is “economic unit.” Two well know lawyfirsm near you are Billy Brewer and John Orcutt.
Bo Regard
Thank you, sir.
It’s amazing how important one’s search terms are to finding the right info online.
Bo Regard
Hey, Mr. Weed, it’s me again…I’m looking for your gut instinct on this, as it’s NC. I realize I’ll have to have a lawyer here.
Using the “economic unit”, it looks like I will have to include the person I bought the house with in 2001. We have equity of about $75K ($37,500 for me) and the Deed is JTROS. I understand that creditors can go after my half.
From the beginning, we agreed to divide utilities equally. Our dietary preferences are very different, so food was individual, except for cleaning supplies, paper goods, etc. Some furnishings/electronics were bought together, most individually.
In Feb. 2009, I had an uninsured work accident (Sole Prop.), and my income dropped, never to recover because of the recession and a chronic illness. I kept up faithfully with credit card payments until May 2013, but fell behind on my half of the utilities after 2010, while not being able to afford the diagnostic tests I needed to determine treatment options. I tried applying for SSDI online, but it wouldn’t let me complete, saying I didn’t qualify. I recently applied again, and it let me finish.
Sessoms & Rogers is threatening to sue on behalf of BoA. I wrote explaining my situation without acknowledging the amount of the debt. They have responded with 2 letters (no typed name, just an unreadable signature) a few days apart requesting documentation of my situation to submit to BofA. I’m not inclined to furnish them any documents – they’ll just stab me in the back with them.
Anyway, my housemate has very good records of the amount I owe (including my 1/2 of the mortgage payment since November). What would be the likely consequences in bankruptcy of her suing me right away and putting a lis pendens on my half of the house?
Robert Weed
Bo:
If you were here, we’d probalby spend a couple hours sorting all that out. There’s no way to figure that out by email.
Jerrod Storm
If I don’t qualify for chapter 7 based on my income because I’m above the median amount, then what’s the least amount of qualifying monthly expenses I need to have in my budget before I can pass the means test? Is it a certain percentage of my income, or is it a fixed amount based on my household size?
Robert Weed
Jerrod:
There’s no one answer. You need enough to qualify you on the means test. But different rules apply to different expenses.
Jerrod Storm
Can you expand on that? Within the details of the means test, different rules might apply to different individual expenses and dictate what & how much of a particular expense someone can or cannot use, but at the end of the day, the means test still has to issue a final overall score of PASS or FAIL, right? So when it looks at someone in aggregate, how does it decide whether that person has enough qualifying expenses to pass the test?
Robert Weed
Jerrod:
I’ve given as much general outline as I can in my blog.
Michael
I am thinking of filing, sadly I am in another district and can not use you as my attorney. I really appreciate how much time you spend online answering questions and putting out general information I feel like you take pride in what you do and try to go above and beyond just helping your own clients even. I have a general question or two if you don’t mind this would be for the Roanoke area bankruptcy courts which are different but I assume similar? If I take care of my mother in law (included on my tax return as a dependent) is it ok to claim her on my bankruptcy as a dependent too as she lives with me and my spouse and I am the only one with any income/job and the bankruptcy would be filled jointly with my spouse. Also if it is OK to claim her can I add health insurance for her as an expense for the means test and expense forms if so should I get it for her before filing bankruptcy or just get estimates and make sure the trustee will allow it as an expense? And is it inappropriate or illegal to call a local trustee and ask questions like this?
I am not trying to file on my own just trying to get a rough idea of if I am going to qualify for a 7 or 13 and what my payment would be if it is a 13. If you have any recommendations for attorneys in the Roanoke region that would be welcome as well.
Robert Weed
Mike:
Good questions. Before I comment, I need to point out that while the law is the same, I do my work in a very high cost of living area and that may lead to different attitudes among judges lawyers and trustees than what you have in Roanoke.
I certainly think your mother in law is a dependent. based on what you told me. All here expenses would be expenses of the family household. (Her social security income, if she gets social security, does not count as part of the family income.)
The best known, and largest, bankruptcy law practice in Western Virginia is Cox law group. They are based in Lynchburg, though. I’m sure they know highly respected lawyers in the Roanoke area. Sorry I don’t.
PS A bankruptcy trustee is not allowed to give you advice now, because they might see things differently when they review your whole file and ask you questions.