May 2012 Means Testing - Helpful Changes to Expense Allowances

The bankruptcy means test is important in multiple ways to bankruptcy filers. It can determine chapter 7 eligibility, and in chapter 13 can affect both plan duration and payments to creditors. The statistics used in means testing are updated periodically by publication of the United States Trustee. The newest numbers are valid for cases filed on or after May 1, 2012, and include a number of updates that will be positive for many debtors.

Median Income in North Carolina

If a family is below the state median income, the means test doesn't apply, generally simplifying the process for filing bankruptcy. There is some tendency for these Census department generated numbers to reflect a fall to spring increase, a pattern holding true this spring. While the following increases for North Carolina are modest, they can provide benefit to individual whose income falls right on the line:

• For a 1 person household, median of $39,088 (up from $37,892)
• For a 2 person household, median of $48,710 (up from $50,248)
• For a 3 person household, median of $54,310 (up from $56,024)
• For a 4 person household, median of $65,036 (up from $67,089)

Expense Deductions

The more significant change in this spring's update is to a number of the IRS-derived expense standards used in the calculation of the means test by above median income debtors. When the means test applies, expense standards are used to determine whether a debtor has sufficient income above statutory expenses to repay unsecured creditors (such as credit card accounts). While individual changes are small, added together, they can be significant for some debtors.

Standards for Food, Clothing, and Related

As the IRS explains: "Additional items were added to the miscellaneous allowance under National Standards for Food, Clothing and Other Items, increasing the amount allowed for miscellaneous expenses." Adopted by the bankruptcy code into the means test, this change in definition by the IRS is results in an increased deduction for essentially every above median bankruptcy debtor. While modest for a household of one (an increase of $31), in larger households this increase can be substantial ($92 for an 5 person household, $5,520 over the life of a chapter 13 plan).

Automobile Expenses

Standards for car ownership were also adjusted upward. For the south region where North Carolina sits, if a debtor has one or two cars with a loan, the debtor also benefits from a $21 per car ownership expense increase.

Housing Expenses

Allowable housing expenses on the means test vary on a per-county and per-household size level. This is the only part of the means test where county of residence matters. In the five counties closest to our office (Wake, Johnston, Franklin, Nash, and Wilson), one observes a 1-5% increase in the allowance for rent/mortgage and a -1% decrease to 6% increase in the allowance for other housing costs (e.g. utilities). The rent/mortgage allowance is only relevant for people without an actual mortgage (not rent) expense exceeding the allowance.

Our free bankruptcy evaluation includes an assessment of how the means test applies to your individual situation.