Common Mistakes of the Bankruptcy Means Test

Common Mistakes of the Bankruptcy Means Test

In order to file for chapter 13 bankruptcy, an individual must first complete the bankruptcy means test. The means test is a form that the individual needs to complete in order to determine if they are eligible for bankruptcy and it will also impact the length of the bankruptcy itself. The bankruptcy means test is not a simple form, and many  people make mistakes on the form, therefore being denied or delaying their bankruptcy. In order to avoid some of the common misunderstandings and mistakes of the bankruptcy means test, follow these simple steps for success.

Reporting Household Size

Reporting the correct household size is extremely important, as it will largely impact your bankruptcy determination. The courts use the household size to determine your average family income and the housing and expenses deductions. While certain courts have differing opinions on what constitutes your household size, it is always best to report the number of people in your household who are financially dependent on you. This would not count someone like an adult relative living in your house but supporting himself with his own income. However, other courts count household size as anyone and everyone living in your home. It is important to know what your court considers as household size before completing your form.

Deduction Mistakes

There are many deductions that need to be noted on the means test. Some of the most common mistakes center on reporting deductions incorrectly. This section will discuss some of those common mistakes. The first mistake is when individuals report deductions on the test that is not allowable deductions for bankruptcy. Examples include retirement accounts, 401K, and 401K repayments, student loan payments, and other college expenses. And the opposite is also true; not reporting allowable deductions is also a mistake some people make.

Not reporting certain deductions could prevent you from obtaining bankruptcy when you would likely have received it. Examples of deductions that some people fail to report could include payments toward court expenses, such as in a divorce, housing taxes, etc. And if you are filing for bankruptcy due to an ensuing divorce, and your spouse is not filing for bankruptcy, you can file for a marital adjustment deduction to help your cause.

Another common deduction mistake is in regards to housing and mortgage deductions. Your housing deduction that you choose will be determined based on whether or not you are keeping your house. If you are keeping your house, you will take the standard housing deduction that is listed on a separate line from the mortgage payment in order to claim the mortgage payment you are responsible for. If you are not keeping your house for any reason, you will take the standard housing deduction.

Completing the Test When You Don't Need To

You do not always need to take the means test when filing for chapter 13 bankruptcy. Two reasons why you would not need to complete the means test are if you are filing for business bankruptcy or you re a disabled veteran or in the army reserves. In this case, you would complete a different form other than the means test.

You would qualify for business bankruptcy if you have borrowed money for business purposes and you have developed debt as a result. Another example would be business back taxes, and in some rare cases, student loan debt. Don't delay your bankruptcy process if this is the case for you.

Income Mistakes

Your income is another major determining factor in chapter 13 bankruptcy and is therefore vital to completing correctly on the means test in order to gain bankruptcy. The income on the test must match the income documentation you provide. Your monthly income will also affect the amount of time you have to make bankruptcy payments throughout your chapter 13 bankruptcy. You must also report any other forms of income such as child support or other means.

With the right information, you can be sure to avoid some of these common mistakes on the bankruptcy means test and therefore avoid delaying your bankruptcy determination.

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