What is considered expenses for bankruptcy?

Expenses See also Needs Based Bankruptcy–Explanation of §707.
The debtor’s monthly expenses include:

IRS National Expense Categories. Expense amounts for the categories below will be taken from National Expense Categories a single table maintained by IRS for all states. [§707(b)(2)(A)(ii) (I) & (II)]

Apparel and services.
Includes shoes and clothing, laundry and dry cleaning, and shoe repair.
Food. Includes all meals, home or away.
Housekeeping supplies. Includes postage and stationary; laundry and cleaning supplies; other household products: cleansing and toilet tissue, paper towels and napkins, lawn and garden supplies, and miscellaneous household supplies.
Miscellaneous. A discretionary allowance.

Food & clothing expenses may be increased by 5% above the allowance when “reasonable & necessary.”

IRS Local Standard Expenses. Expense amounts for the categories below will be taken from the IRS Local Standard Expenses table, based upon the county in which the debtor resides. [§707(b)(2)(A)(ii) (I) & (II)]

Utilities. Includes gas, electricity, water, fuel oil, coal, bottled gas, trash and garbage collection, wood and other fuels, septic cleaning, and telephone.
Housing. Usually, only expenses for the place of residence are considered to be necessary. Housing expenses include: mortgage or rent, property taxes, interest, parking, necessary maintenance and repair, homeowner’s or renter’s insurance, homeowner dues and condominium fees.
Transportation. Vehicle insurance, vehicle payment (lease or purchase), maintenance, fuel, state and local registration, required vehicle inspection, parking fees, tolls, driver’s license, public transportation. Transportation costs not required to produce income or ensure health and welfare are not necessary.

Mortgage and vehicle payments although included in the IRS Local Standards are not to be included in the allowed expenses, since they will be included separately below.

IRS Other Necessary Expenses. IRS allows the debtors actual expenses in the following categories (as specified in the IRS list of Other Necessary Expenses):

Accounting and legal fees. Fees are necessary only if they are for representation before the Service or they meet the necessary expense test of health or welfare and/or production of income.
Charitable contributions. These expenses include donations to tax exempt organizations such as: civic organizations, religious organizations (tithing and educational), and medical services or associations. To be necessary, charitable contributions have to provide for the health and welfare of the taxpayer or taxpayer’s family; or be a condition of employment.
Child care. Baby sitting, day care, nursery, and preschool. Expenses are necessary if they meet the necessary expense test: health and welfare and/or production of income. Ensure that only a reasonable amount is allowed. Costs of child care can vary greatly. Don’t allow unusually large child care expenses if more reasonable alternatives are available.
Court ordered payments. Alimony, child support (including orders made by a state administrative agency), and other court-ordered payments. If the expense is already being deducted directly from a taxpayer’s pay, do not include it again as an expense.
Dependent care. For the elderly, invalid, or handicapped. This expense is necessary if there is no alternative to the taxpayer paying the expense.
Education. Education is a necessary expense if required for a physically or mentally challenged child and no public education providing similar services is available. It is also a necessary expense if required as a condition of employment; for example, a teacher whose employment is conditional upon completion of a graduate program.
Health care. Health insurance, medical services, prescription drugs, and medical supplies (including eyeglasses and contact lenses). A guide dog for someone who is visually handicapped is also allowable.
Involuntary deductions . Deductions from income include FICA, Medicare, and union dues.
Life insurance. To be necessary, insurance is limited to term policies. Life insurance used as an investment is not a necessary expense. Consider if the payoff of the policy is high compared to the lifestyle of the beneficiaries. Even for term policies, expensive premiums must be justified.
Taxes. Current federal (including FICA, Medicare), state, and local tax payments. Delinquent state and local tax payments are necessary and, therefore, allowable depending on the priority of the Federal tax lien and/or Service agreements with state and local taxing agencies.
Family Safety Expenses. Monthly expenses shall include those necessary to maintain the safety of the family under §309 of the Family Violence Prevention and Services Act (42 U.S.C. 10408), or other applicable Federal law.

Care of elderly, ill or disabled member of household. Actual expenses for care and support of an elderly, chronically ill, or disabled household member or member of the debtor’s immediate family (including parents, grandparents, siblings, children, and grandchildren of the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case). [§707(b)(2)(A)(ii)(II)]

Chapter 13 Trustee’s fee. If eligible for Chapter 13, up to 10% of plan payments for Trustee’s fees. [§707(b)(2)(A)(ii)(II)]

School expenses. With documentation and detailed explanation, actual private elementary or secondary school expenses of up to $1,500/year for each child under 18. [§707(b)(2)(A)(ii)(IV)]

Payment on Secured Debts. Payments on secured debts, calculated as the total due to secured creditors over 60 months, divided by 60.

Payment on Home, Vehicle and Other Property. Additional payments necessary to maintain debtor’s primary residence, motor vehicle, or other property necessary for the support of the debtor and the debtor’s dependents, that serves as collateral for secured debts; divided by 60. [§707(b)(2)(A)(iii)]

Priority claims. Payments on priority claims (including taxes, child support & spousal maintenance). [§707(b)(2)(A)(iv)]

The data needed for means test is located at the U.S. Trustee’s Means Test page.

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12 Comments

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  2. It is your back tax attorney or Certified Tax Resolution Specialist’s job to consider your unique situation and give you the best possible tax help. s financial status improves, the IRS can remove the file from CNC status and return to active collection status. However, it is notable to mention that there are no options available to these third party professionals that the IRS does not make available to a taxpayer directly.

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