In the first installment, we reviewed various expenses folks often reduce in order to pay bills. However, the bankruptcy means test is designed to encourage folks to take care of themselves instead.
It is not simply skimping on necessities like health care that should stop. There can be broader long-term needs you are encouraged to look after before paying back old debts.
For example — Did you cut back on your tithes to church or your contributions to charity? I believe charity begins at home — you should cut back on those things if your family is going wanting. But if you did it to pay creditors, then go with the charity instead. Whether you do so for spiritual reasons or simply out of a sense of civic duty, your continuing charitable giving is almost always allowed in the means test.
Did you cut back or cancel your 401(k) contributions to pay bills? If you can, you ought to start contributing again. First because it’s a good idea. Bankruptcy lawyers are big fans of saving money for later. Next because it helps lower your tax bill. And it is money that is often safe from creditors but can be accessed in emergencies — or grow for retirement. If your employer matches part of your contribution then it’s like giving yourself a raise as well. As if that wasn’t enough, if you “fail” the means test or just have to file Chapter 13 for other reasons, these contributions will reduce how much you have to repay creditors.
Are you working a couple jobs and grabbing overtime whenever you can? It’s probably ruining your family life and it isn’t getting you that much closer to getting out of debt, is it? (If it was, you probably wouldn’t be reading our website!) The twisted irony of the means test is that it will punish you for making more money, even if you can’t sustain it.
So if there’s a decent chance you can’t avoid bankruptcy, then reduce your stress level and cut back on your work. Your income level will drop but in fact that will help pass the means test. I don’t suggest anyone cut back so much they can’t maintain a reasonable standard of living for their family but it doesn’t always make sense to work grueling hours and then end up facing a law that, in effect, punishes — not rewards — you for that effort.
It may be perverse to find out the best way to “pass” the means test is to increase your expenses and reduce your income. It’s fairer to say that good advice is to simply relax, enjoy your life more, and take care of yourself more.
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