Deducting Certain Expenses for Mean's Test Purposes (Part I)
Since 2005, the bankruptcy laws have been much tougher on debtors. The infamous mean's test was introduced and debtors and bankruptcy attorneys hae to keep this in mind when looking to what chapter debtors qualify for.
A debtor must take the mean's test if the debtors entire household income is above the state median. The mean's test looks at the debtor's disposable income. Disposable income just means gross income less allowable expenses. we use the word allowable because expense limits or caps are set by the IRS guidelines.
Therefore, hypothetically, if your family of four spends $1,200.00 a month on groceries and the IRS guideline for a household of four is only $800.00, the debtor only gets to use $800 in expenses. Theoretically, the additional $400.00 should be used to pay back creditors.
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