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Reasonable Expenses in Bankruptcy

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The bankruptcy process can be a long and difficult one, and include a substantial amount of paperwork involving complicated calculations. One of the calculations that the court will require is for a debtor to completely list all of their debts, as well as all of their expenses. Reasonable expenses are critical to the calculations, as these expenses will be deducted from a debtor’s average income over the previous six months in order to determine the amount of disposable income available to repay creditors.

Types of Reasonable Expenses

While every person’s reasonable expenses will be different, there are some common types of expenses that a court will consider to always be reasonable for each debtor going through either a Chapter 7 or Chapter 13 bankruptcy. Some of the types of reasonable expenses may include food, clothing, mortgage or rent payments, health insurance, car insurance, life insurance, utilities, cell phone, internet, employment expenses, union dues, property taxes, activities and school expenses for your minor children, education costs for you or your children, transportation expenses, and spousal support and/or child support payments ordered by a court.

IRS Deductions as a Gauge of Reasonable Expenses

In some cases, a court will look to what the Internal Revenue Service (IRS) would calculate to be reasonable expenses for a family of the debtor’s size instead of a debtor’s personalized attempt to itemize their own reasonable expenses.

Unreasonable Expenses

Not all expenses of a debtor will be considered to be reasonable expenses by a bankruptcy court. For example, any luxury or unnecessary items or services will not be considered reasonable. Taking lavish vacations, hiring a dog walker, or including specialized luxury, food deliveries could be excluded from your reasonable expenses and not considered as part of the calculations for the bankruptcy.

In most cases, the United States Trustee’s office will have some examples of standards of reasonable expenses that you can use as a barometer by which to check whether or not your listing or reasonable expenses will be approved by the court. Specifically, a debtor can look to the ‘means-testing’ area and examine the following categories related to reasonable expenses including the following:

  • National standards for allowable living expenses
  • Local standards for both housing and utilities
  • Local standards for transportation expenses

While these are merely national and local standards, they can help a debtor understand what is typically allowed regarding the calculations of reasonable expenses in a bankruptcy, and whether or not their estimations are similar to these standards. 

Contact an Experienced Bankruptcy Attorney Today

If you are considering filing for either Chapter 7 or Chapter 13 bankruptcy, you will have to categorize and itemize your reasonable expenses for the bankruptcy court. Making sure that you handle these calculations is critical to the determination of what your final disposable income will be according to the court. Contact an experienced West Palm Beach bankruptcy attorney today at Kelley, Fulton & Kaplan at 561-264-6850 for a free consultation, and to help you understand how best to handle these calculations in your unique circumstance.

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