Worried About the “Means Test?” Take Care of Yourself First. (Part One)

When you read about the bankruptcy means test, it is easy to get scared. Nobody likes taking tests. But for a lot of people, there’s a secret way to help pass it: Take care of yourself first.

If your income is high enough, there may not be a way to avoid “failing” the means test. But for many close to the line, the secret to getting through is taking care of yourself and your family. The test is actually structured in a way to encourage you to do it so why not? And these suggestions usually work even if you “fail” and have to file a Chapter 13.

By “taking care of yourself” I mean doing the things you ought to do — but haven’t been doing so you can pay bills. One of the more distressing things I see is folks canceling their health insurance to pay creditors back. That is commendable. In an odd way. But it’s ultimately self-defeating: The means test allows your health insurance costs as a dollar-for-dollar deduction. Why take the risk if you won’t be rewarded for it? Why risk your health for creditors who are driving you into bankruptcy?

The same is even more true for a related phenomena: Not getting medical care. Remarkably, folks will stop taking necessary medications or seeing the doctor to pay debts back. This is fundamentally wrong. And it is exactly the opposite of what you should do and how the means test operates. This cannot be stressed enough — medical care comes first — Congress most definitely wants you to take care of your family’s health before paying creditors back.

If you have elderly or disabled family who have special needs, there is also a distinct possibility the means test takes this into consideration and would allow those deductions. And can you imagine the press uproar if your creditors or the government tried to force you to pay debt instead of helping grandma with with her medication?

If you have children who should be in day care or after care but you are getting by with friends and family, re-think those priorities. Your children shouldn’t be punished because you have a debt problem. Child care is a dollar-for-dollar allowance and you shouldn’t think twice about it.

Speaking of kids, if you have family who depend on you either as a bread-winner or simply to be there, do you have enough life insurance? Probably let it lapse or just stuck with the small coverage your employer provides, right? It’s rare that we see folks carrying a reasonable amount of coverage when they are in financial distress. Go out and start researching today. Find a good deal on a term life insurance policy. Those premiums are considered a necessary expense in the means test as well.

In a future installment we will discuss a few other ways in which the means test actually should encourage you to take care of yourself before your creditors.