How to file bankruptcy – #11 in a series – Deductions for Debt Payments

21 Mar How to file bankruptcy – #11 in a series – Deductions for Debt Payments

Sometimes the “Means Test” is called the “mean test”. Why? Congress seems to say that it cares a great deal how you spend your money but if you are already spending it paying your creditors, then everything is OK. Why is this so?

Well, as a matter of policy, Congress decided that money you are paying your secured creditors on a regular basis is money well spent. Congress doesn’t care if you’re upside down on your car or your house. If you are contractually obligated to pay your creditor money, then it is hunky-dory for purposes of bankruptcy.

The Means Test Form B 22 A devotes a whole table to figuring out just how much you can deduct from income.

In general, what you have to do is to figure how much you have to pay over the next five years and divide by 60. This way, you know the average payment you have to make every month.

If you have a loan which extends less than 5 years, you still have to divide by 60. So the payment you can deduct may be less than the payment you are actually making.

This leads to an interesting question. How much should you consider the payment to be in a loan with variable rates of interest? Should you assume that interest is going to go up every year like you’d have to as a lender under the Truth in Lending Act? Or should you assume that interest is going to be steady? What if there is a balloon payment sometime in the next 5 years.

Well, we don’t know. Of course, that’s why you want to hire a good lawyer – you need answers to the questions you don’t know.

Tomorrow, we’re going to talk about “Cure Amounts” – See how simple this is?

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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