How To File Bankruptcy: Debt Payments And The Means Test

How To File Bankruptcy: Debt Payments And The Means Test

By |May 29th, 2013|

This is part of our series on How To File Bankruptcy.

how to file bankruptcySome debts are treated differently than others when it comes to the means test.  Good thing, too.

When you’re looking to file bankruptcy, you go in with a set goal – to get out of debt, catch up on mortgage arrears, pay off taxes, or something similar.

Often, you’ll find that the means test doesn’t help accomplish those goals. Instead, it stands in your way like a bully in the school cafeteria.

But then you forget those debts you’re working on. Can they actually help with the means test?

Debt Payments As Means Test Deduction

The means test allows you to deduct your secured and priority debt payments from your income.

You take the total amount of secured debt payments that will come due within the next 60 months, divide by 60 to get the average monthly debt payment, and enter it on the means test as a deduction.

Then look at your priority debts – such as tax debts and child support payments that won’t be wiped out in a bankruptcy case – and do the same.

If The Remaining Term Is Less Than 60 Months

Maybe you’ve got a car loan that will be paid in full in 40 months. For means test purposes, total those 40 monthly payments and then divide by 60.

It won’t give you a deduction for the full monthly payment, but it will give you some wiggle room.

Some benefit is better than none at all.

You’ve Still Got To Pay

Listing the payments due on the secured and priority debts doesn’t mean you’re home free.

You’re still going to need to make those payments in a Chapter 7 bankruptcy (unless, in the case of secured debts, you are surrendering the property).

In a Chapter 13 bankruptcy, those priority debt payments will be added to your Chapter 13 Plan along with any arrears on the secured debts.

Still, those payment amounts may go a long way towards helping you to qualify for Chapter 7 bankruptcy when that may not have otherwise been the case.

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.