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Means Test As Three Dimensional Chess

By Cathy Moran

means test

Means test issues in bankruptcy extend far beyond how much income you have. The allowable expense deductions for your life after filing bankruptcy count, too.

After an hour long initial consultation with a client, these complexities became clear when the client tagged the means test with incredible clarity.

It’s like playing three dimensional chess

Pretty good assessment of the mess Congress made when it “reformed” bankruptcy law.

We were juggling the means test interaction between unfiled tax returns, a business downturn, and payments to an estranged spouse not yet ordered by a court.

  • how much was owed to the IRS
  • would the voluntary support of an estranged spouse qualify as a means test deduction
  • what’s the impact of living with parents on the housing deduction
  • how would spousal support be treated for the current year’s taxes after the recent tax changes
  • is it better to wind down the existing corporation and start over

The client demonstrated further savvy by holding this exploratory meeting with a bankruptcy attorney before there was a crisis.

He had time to make the spousal support officially court ordered.  The tax returns would tell us whether there were priority taxes that skew the means test.

We could analyze the choices and just what the means test would mean if he elected Chapter 13.

It felt good to applaud a client.

Timing is everything in bankruptcy

Timing for a bankruptcy filing extends beyond the means test. Bankruptcy law looks backward from the date of filing to fix the rights of the person filing and the rights of their creditors.

When you file affects

  • Exemptions 
  • Discharging taxes
  • Tax refunds
  • Clawbacks of money transfers 
  • Eligibility to file bankruptcy 
  • The amount of your Chapter 13 payment

There’s an entire post here on Soapbox analyzing those bankruptcy timing issues.

For right now, let’s just speak up for planning ahead.

More

Drive in bankruptcy

Unfiled tax returns are a life sentence

Don’t do stupid things before seeing a bankruptcy lawyer

Why we don’t offer a free lunch

More from the Soapbox

  • How To Save Your House With Chapter 13 BankruptcyHow To Save Your House With Chapter 13 Bankruptcy
  • Life After Bankruptcy: What’s It Really Like?Life After Bankruptcy: What’s It Really Like?
  • What Happens To Liens In Bankruptcy?What Happens To Liens In Bankruptcy?
  • Life And Death of Debt In CaliforniaLife And Death of Debt In California
  • What You Think About Chapter 13 Is Dead WrongWhat You Think About Chapter 13 Is Dead Wrong

Filed Under: Considering Bankruptcy, Featured Tagged With: 2018

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

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About The Soapbox

You've arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said "try").

Here, I allow myself to tell stories and express strong opinions on how I think law should work for the consumer and small businesses when it comes to debt.

Moran Law Group
Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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