The Means Test and List of Allowable Expenses for Arizona Bankruptcy

By Heather Frances J.D.

Nationwide, bankruptcy law qualifications changed significantly in 2005 when the Bankruptcy Abuse Prevention and Consumer Protection Act began requiring a means test for Chapter 7 bankruptcy, designed to prevent abusive bankruptcy filings. The expenses allowable as deductions in Chapter 7 bankruptcy also change periodically and are designed to balance a person’s need to continue with an adequate lifestyle while minimizing abuse of the bankruptcy system.

Means Test

If you make less than Arizona’s median income, you qualify to file Chapter 7 bankruptcy. As of May 1, 2012, the median income for Arizona was $42,628 for one person with increases based on family size. If you make more than this, to qualify for Chapter 7 you must pass the means test which determines whether you have sufficient income to make some payments to your creditors. The means test deducts your necessary expenses from your income, and if that net income is less than $100 each month, you qualify to file. If your net income is between $100 and $166, you may qualify to file if your net income is less than 25 percent of certain debts. If your net income is more than $166 you cannot file for Chapter 7 except in unusual circumstances. If you don’t qualify to file Chapter 7 bankruptcy because of the means test, you may still qualify to file Chapter 13.

Expense Standards

Since living expenses can differ widely from place to place, some expense standards are specific to locations in Arizona, like housing, utilities and transportation. For example, the transportation expense standard for Phoenix is $582 for two cars, but the same standard for Seattle is $384. Other standards, like food and clothing are determined nationally. All expense standards, whether state or national, are determined by the Internal Revenue Service.

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Situation-Based Expenses

Some levels of allowable expenses are based on your personal situation and location. If you live in an expensive area of Arizona, you receive a higher expense allowance than someone who lives in a lower-income area. These expense allowances are based on the cost of living in your county.

Expenses Based on Family Size

Other expense allowances are based on family size, and the amount increases with the size of the family. For example, as of 2012, the food allowance for one person is $301, but it increases to $765 for a family of four. Similarly, the allowance for personal care products is $32 for one person, which increases to $67 for a family of four.

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California Bankruptcy Law: Maximum Income


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What Are Living Costs in Chapter 7?

Not everyone qualifies for a complete discharge of indebtedness under Chapter 7 of the federal bankruptcy law. An individual whose monthly income is too high will have to file instead under Chapter 13, which requires making payments for several years. However, even if a person fails the means test at first, it may still be possible to qualify for Chapter 7 debt relief after deducting certain living expenses.

Disposable Income Used in Chapter 13

Consumers have two options in bankruptcy court: Chapter 7 and Chapter 13. Chapter 7 liquidates assets and discharges your debts without further payment; Chapter 13 allows you to keep your car and house, but places you on a court-supervised repayment plan. If you are ineligible for Chapter 7 protection, by exceeding a means-tested average income limit for your geographic area, you must petition for Chapter 13 bankruptcy and commit your disposable income to pay creditors.

Disadvantages to Filing Chapter 13 Bankruptcy

Chapter 13 bankruptcy gives a debtor the opportunity to get back on his feet when the debt load becomes too much to handle. However, Chapter 13 bankruptcy proceedings carry potential disadvantages, such as negatively impacting the debtor's creditworthiness, so a debtor may choose to file another type of bankruptcy case or attempt to avoid bankruptcy altogether.


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