Can I deduct college tuition on the Chapter 7 means test?
In most cases, you cannot deduct college tuition on bankruptcy's means test.
In most cases, you cannot deduct college tuition on bankruptcy's means test. This means that if you have a big tuition payment, it won't help you pass the means test. This is important because the means test determines (along with other criteria) whether you are eligible to file for Chapter 7 bankruptcy. (Of course, many people pass the means test even though college tuition does not count as a deduction.)
If you are filing for Chapter 13 bankruptcy, large college tuition payments may make it harder for you to propose a realistic repayment plan.
However, there are some educational expenses that can be deducted from the means test.
What Is the Means Test?
The bankruptcy means test is the formula which determines whether you can file a bankruptcy under Chapter 7 or whether you can only file under Chapter 13. Anyone who is determined to have annual income which exceeds the median income for their state must take the means test to determine their eligibility for Chapter 7. If you have large expenses that the means test allows you to deduct, you are more likely to pass the test. (To learn more, seeBankruptcy's Means Test.)
Can You Deduct College Tuition on the Means Test?
There is no provision in the means test for the deduction of college tuition. There is a provision for special circumstances, but the courts that have considered it have generally not found that college tuition falls into this category and have disallowed the deduction.
Will Filing for Bankruptcy Affect My Ability to Pay College Tuition?
If you file for bankruptcy, it may affect your ability to pay college tuition, depending on what type of bankruptcy you file.
If You Are Eligible for Chapter 7
A Chapter 7 is a liquidation bankruptcy which does not require you to commit future income to the payment of pre-bankruptcy debt. If your income is below the median income for your state or your means test result indicates that you can file for Chapter 7, you will be able to use your post-bankruptcy earnings to pay college tuition.
If You File for Chapter 13
A Chapter 13 is a repayment plan which requires you to contribute all of your disposable income to pay creditors at least a portion of what is owed over three to five years. A formula which is a slight variation of the means test determines your disposable income which must be paid into the Chapter 13 plan each month. Like the means test, it has no provision for the deduction of college tuition.
If you file for Chapter 13, unless you have sufficient income to pay creditors in full through your plan with money left over, you will not have any funds available to pay college tuition over the three to five year duration of your plan.
A Possible Exception: Domestic Support Orders
If you are divorced and have been ordered by the divorce court to pay all or a portion of your adult child’s college tuition, you may be allowed to deduct it as a court-ordered payment. Line 28 of the means test permits the deduction of any court-ordered payments, including domestic support obligations. At least one court has allowed the deduction of college tuition for the debtor’s adult child to be deducted as a domestic support obligation where payment of reasonable college tuition and expenses was ordered by the divorce court.
Educational Expenses That You Can Deduct
However, there are some types of education expenses that you can deduct on the means test.
Elementary and Secondary School Expenses for Children Under 18. These items can be deducted up to $156.25 per child per month ($1,875 per year) if
- the child is under the age of 18 at the time of the bankruptcy filing
- the expenses are documented
- the expenses do not include pre-school (which are covered as a child care expense), and
- they have not been claimed on another line of the means test.
Expenses for a Special Needs or Challenged Dependant. It is possible that you could claim a tuition deduction for a special needs or challenged dependant, regardless of age, but there limitations:
- the expense must be for the health or welfare of the individual
- it cannot include services which are provided free by the public schools, and
- the expense cannot have been claimed on another line of the means test.
Educational Expenses Required for Employment. These expenses are included only if the education is a condition of your employment. It is unlikely this would include college tuition and is more likely that it would be limited to:
- re-certification courses, and
- continuing education necessary to keep licenses and/or skills current.