Household Expense Considerations in an Arizona Bankruptcy

How will you take care of your family if you opt for an Arizona bankruptcy? Will you have enough to cover basic needs and ensure a good quality of life? These are common questions that trouble many people who are exploring bankruptcy as a way to get out of debt.

Whether you’re filing for Chapter 7 or Chapter 13 bankruptcy, a means test will have to be performed. In addition, Arizona residents who are applying for Chapter 13 bankruptcy will also have their disposable income calculated. The disposable income is the monthly salary minus the necessary family expenses.

The Means Test

Before taking a look at household expenses and which ones are taken in consideration when bankruptcy calculations are being made, it’s important to discuss the specifics of the means test.

The means test is an absolute essential for those who want to qualify for Chapter 7 bankruptcy. People who fail the test will be left with one option – Chapter 13 bankruptcy and repayment of at least some debt.

To qualify for Chapter 7 bankruptcy, an individual needs to have household income below the median for the state. As of 2015, the median household income in Arizona was 51,492 dollars. When the calculations are being made, household expenses are deducted from the income. The remainder on a monthly basis is used to figure out what type of bankruptcy the individual qualifies for.

Household Expenses that are Considered in Arizona Bankruptcy Proceedings

Necessary household expenditure is a somewhat vague term because the needs of one family differ significantly from those of another.

Housing, utility and transportation costs are always taken in consideration when calculations are being made. The transportation expense standard is location-specific. People who live in Phoenix have completely different transportation needs from those living in Washington (even if the household specifics are similar like owning one car, for example).

The Internal Revenue Service (IRS) is the entity responsible for setting these expenditure standards. IRS calculates the values for both local and national household expenses. Calculations for food, for example, are made on a national basis because the cost of such essentials are more or less the same.

Expenses are also based on family size and neighborhood that the family lives in. People who live in an expensive Arizona district, for example, will need to spend more on essentials like rent and utilities than people who live in a more modest part of town.

The amount also increases with every family member. The food allowance for one person was 301 dollars according to 2012 IRS calculations. For a four-member family, this amount increases to 765 dollars. Obviously, these numbers are old but they give you some idea about how many factors need to be taken in consideration when household expenses are being calculated in an Arizona bankruptcy.

Other Costs

Several other costs can also be expected to be added to the calculation.

Medical expenses rank among those, even if you’re currently not getting the healthcare assistance that you need because of financial considerations.

arizona bankruptcyThe fact that you are currently living on a limited budget does not mean this is a reasonable amount to cover household expenses. Thus, do not take current expenditure in consideration when Chapter 7 and Chapter 13 bankruptcy calculations are being made.

Some essentials you may not be spending on right now but that will be added to the equation include house maintenance, new clothing, dental care, personal expenses, car maintenance and expenses related to the wellbeing of your children (like activities, the cost of school uniforms and books and summer break expenditure).

Your attorney will discuss these essentials as well as eventual payroll deductions and how these will change in a bankruptcy filing. Getting a good idea about your financial status and your household expenses in advance is still a good idea because you will know whether you qualify for a Chapter 7 bankruptcy or if you should consider another option.