Means Test: Don’t Give Up, Even If You Think You’ve Flunked It, Part 7

09 Dec Means Test: Don’t Give Up, Even If You Think You’ve Flunked It, Part 7

What happens if your bankruptcy “means test” results in your lawyer telling you that you cannot file a chapter 7? Or that your chapter 13 monthly payment must be an amount that is too much for you to pay? You need to start understanding the means test, contained in Form B22, if you plan on fixing that kind of problem. Even small monthly expenses will add up and skew your means test result if you or your lawyer forget to include them. Worse, some expenses could be omitted due to confusing or incorrect language chosen by the judges’ committee that drafted Form B22. Life insurance is a means test category which is especially subject to confusion.

The instructions to Form B22 state that you are entitled to an expense for term life insurance, but not for whole life insurance, and not for insurance on the lives of your dependents. However, these qualifiers are not found in the IRS standards, which the bankruptcy law says the means test should use. The IRS standards simply allow a deduction for life insurance. It may be worthwhile to consider using an expense for whole life isurance, because you can claim a statutory basis for not following Form B22’s limiting language. Also, a portion of your whole life insurance premium may actually be attributable to insurance only, as opposed to the investment portion of the premium.

Form B22’s instruction forbidding an expense for insurance on the life of a dependent is also unfortunate. In a joint husband-wife bankruptcy case the parties probably should be considered as being each others’ dependents, yet Form B22’s instructions seem to rule out dependent life insurance. In a joint bankruptcy case, it seems likely that courts will follow the IRS standard’s allowance of life insurance for the taxpayer, which should mean each party to the bankruptcy case.

If your means test result requires that you pay close attention to each and every possible expense, life insurance is a category you should think about again.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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