The means test is often the starting point for anyone who is filing for bankruptcy. It determines if you are eligible for Chapter 7 bankruptcy, and impacts your plan length in Chapter 13 bankruptcy. The means test is a complicated form, and mistakes are common. Read on to find out what some of the most common mistakes are in completing the means test.
(To learn more about the means test, see The Means Test & Other Chapter 7 Eligibility Issues.)
Using the Wrong Household Size
Determining the right household size to use can be tricky especially since the courts tend to disagree on this. A small number of courts take the extreme view that you count everyone who is living in your house (sometimes referred to as the "heads on beds" approach). Other courts have included only those occupants who are financially dependant on the debtor.
Your household size can have significant impact because it is used to determine:
- the median family income for comparison to yours, and
- the standard deduction amounts for housing and certain expenses.
A good rule of thumb is to consider whether the occupants are in some way financially interdependent and form one economic unit. For example, an elderly parent who lives with the family would be a member of the household, while a boarder who rents a room in your house but pays only rent and doesn’t contribute further towards expenses and doesn't share family resources, would generally not be counted as a member of the household.
(For more information on household size and the means test, see Household Size and the Chapter 7 Means Test)
Your Income Doesn't Match Documentation
The income you list on your means test form must match your income documentation. Often, the number of weeks in a month, the date on which your paychecks are issued, or the timing of your bankruptcy filing will effect your "average" income figures enough to impact whether or not you are eligible to file for Chapter 7 or, if you file Chapter 13, whether you need to make payments over three years or five.
You should also examine your financial documentation carefully to see whether there were any other sources of income during the time period. One-time payments will likely be counted towards your income and are easily missed.
You List Child Support That You Are Supposed to Get, But Don't Actually Get (And Vice Versa)
Child support is income only if you are receiving it. You should not list child support that is supposed to be paid to you but is not, as income. You also cannot list child support as an expense if you are not actually paying it.
Actual Mortgage Payments vs. Standard Housing Deduction
Generally, you list the standard housing deduction and then adjust it on a different line to claim the actual amount of your mortgage payments. If you do not plan to keep your house and are surrendering it to the mortgage holder, you can only take the standard housing deduction. You cannot adjust it to match the mortgage payments that you will no longer make.
Taking Deductions That Are Not Allowable
401K, retirement account contributions, and 401K loan repayments are some examples of expenses which are generally not deductible. Cell phones are included in the standard utility deduction and are not separate. College expenses for your child are generally not deductible but education expenses as a condition of your employment would be deductible.
Not Taking Allowable Deductions
Make sure you do take all allowable deductions. Payments you make under court order, such as in a divorce or custody case, are allowable deductions as other deductions even if the expense would not otherwise be allowable. Also, if taxes and insurance are not escrowed as part of your mortgage payment, you need to remember to list these amounts separately.
Duplicating Deductions When Your Spouse Is Not Filing for Bankruptcy
You can and should take advantage of the marital adjustment deduction if your spouse is not filing for bankruptcy with you, but you need to make sure that expenses that are part of the marital adjustment deduction are not listed again as ordinary deductions.
(For more information on the marital adjustment deduction, see Marital Adjustment Deduction on the Bankruptcy Means Test)