Anyone who files bankruptcy is required to complete and file a document entitled B22. This is normally referred to as the Means Test. The Means Test was set up by Congress to better standardize a system that determines who has the ability to pay their creditors and who does not have the ability to pay their creditors. More plainly stated, the Means Test is what must be completed to determine if you belong in a chapter 7 or a chapter 13 bankruptcy. This system is a compilation of allowances for expenses and actual amounts that debtors pay for certain expenses.
Before you read on know that this post comes from a darker place within me than most of my other posts!
This morning I saw the new numbers for the Means Test that will go into effect on March 15, 2011. These numbers are derived from the IRS collection guidelines which are partially created by factors attributed to the economy. Recently I am sure that you experienced a surge in the costs of gasoline at the pump. I saw in the Des Moines Register that gas per gallon went up something like 34 cents in just a couple of weeks! Much of the rise in the cost of gasoline is directly related to the cost of oil going up. Oil has increased to over $100.00 per barrel. You and I experience more than just increase in the cost of gasoline when the price of oil goes up.
When oil goes up everything gets more expensive because our society is primarily based on oil and its bi-products. The cost to ship materials goes up. The cost of planting and harvesting food goes up. The cost of heating and turning on the lights goes up. All of these expenses cause the cost of the products that you and I consume to go up because the cost is passed to you and I at the store. It is very simple.
As I previously mentioned everyone who files for bankruptcy is subject to the means test and new numbers have been established for determining who qualifies for chapter 7 bankruptcies and who qualifies for chapter 13 bankruptcies. First the good news – The median income for all sizes of families in Iowa increased since the last update in December/January. The United States Bankruptcy Trustee Program (UST) and the Internal Revenue Service also have realized that the cost of living has increased. Because the costs of everything is going up the allowances used in the Means Test are going up! On its face that is good news because it would seem more people will qualify for chapter 7 bankruptcies and be able to get a fresh start more quickly. Notice I pointed out, “on its face.” Let’s look at the numbers that I saw and consider what they mean.
The first set of numbers I looked at were the vehicle operating costs. Since just about all of my clients operate a car that seemed like a good place to start. Because of the increase in gasoline (and presumably the oil, part, and anything else relating to the maintenance and operation of a car) the operating allowance was increased by $2.00/month! That’s right, the IRS and the UST believe that because of the increase in the cost of oil that it should only be costing you an additional $2.00 each month to operate a vehicle. Amazing.
That isn’t the only place I noticed an increase. The allowance for food went up a whopping $5.00 per month for a family of 4. In other words the allowance for food went up $1.25 per person. Has anyone heard of buying in bulk? Try Costco!!!! The costs for housekeeping (vacuum, cleaning supplies, etc.)and clothing remained the same. But there is still more good news – the costs for a family of 4 for personal care (haircuts, soap, shampoo, etc.) went up $1.00. Keep in mind that isn’t $1.00 per person but an actual buck for a family of 4. It probably means that my clients are going to have to cut down on the number of showers they take each week. That isn’t good for me because I do a ton of meetings.
The housing and utilities allowance was also increased. These figures are calculated for each County in Iowa. Instead of giving you each County I will just tell you that for a family of 1 the utility and other non-mortgage expense increased $6.00 while for a family of 4 the same allowance increased $11.00. Remember each of those numbers is for the entire family each month. Budget billing isn’t going to save you when your bill gets recalculated. The mortgage expense for a family of 4 was also increased $11.00 per month. That is $132.00 per year which is less than the increase I will experience in real estate taxes. Don’t blame the City or the County for the increase in taxes. Where do you suppose we get the money to pay for the police department, fire department, schools, road repair or turning on street lights? That stuff isn’t going to get cheaper because oil is more expensive. Maybe we will see more cops on bikes. They really stand out in their yellow shirts. The bad guys will never see them coming. I am just giving my police friends a hard time – I respect the police and know that they serve an important function protecting my family.
I am sure that I am forgetting something but these are the areas that stood out to me. To summarize the costs relating to just about everything in our lives is increasing and I doubt anyone of us is getting a raise because the cost of oil is going up. Normally when we see an increase in the allowances for the Means Test we anticipate an increase of the number of people who will qualify for a chapter 7 bankruptcy. Looking at the increase that the UST and the IRS have put forward sort feels like a slap in the face. More people won’t qualify for chapter 7 bankruptcy because of the increase in the allowances but rather more people will qualify for chapter 7 because everyone is going to go broke.