How Expenses Are Calculated in the Bankruptcy Means Test: What You Can (and Can’t) Include
Filing for bankruptcy in California involves several important steps, but few are as central as the Bankruptcy Means Test. This calculation determines whether you qualify for Chapter 7 or whether your financial situation suggests a Chapter 13 repayment plan. Because the Means Test applies federal rules to your California household’s income and necessary living expenses, understanding how each part is evaluated is essential.
For many Californians, especially those living in counties like Los Angeles, standardized expense allowances can look very different from actual monthly costs. Knowing what you can and cannot include helps you approach the process with clarity. If you need personalized guidance, speaking with a Los Angeles bankruptcy lawyer can help you understand how these rules apply to your situation.
How the Means Test Reviews Income for California Filers
The Means Test starts by calculating your average income during the six months before you file. This includes wages, business income, rental payments, overtime, and other forms of household income. That number is then compared to the median income for a household of your size in California. Because California’s median income is higher than in many other states, some residents qualify for Chapter 7 even when they assume otherwise.
If your income exceeds the California median, the Means Test moves to a second stage that subtracts certain allowed living expenses based on IRS National and Local Standards. These standardized allowances are used nationwide and apply whether you file in California or elsewhere. Once these deductions are applied, the calculation helps determine whether a Chapter 7 filing is appropriate or whether you may need to pursue Chapter 13. For Chapter 13 filers, the Means Test also helps determine how much disposable income must go into a repayment plan and how long that plan may last.
Housing and Utility Costs Under California Standards
Housing costs are often one of the largest expenses for California residents. The Means Test uses IRS Local Standards to determine the allowed amount for rent, mortgage payments, and utilities based on county and household size. Los Angeles County has a higher allowance than many regions, but the standard amount may still fall below what many households actually pay.
Covered expenses include mortgage or rent, electricity, water, trash service, and basic home maintenance. Homeowners may deduct certain secured mortgage payments separately, which can meaningfully affect how the Means Test evaluates disposable income. Understanding how these allowances apply is especially important for Californians in areas where housing costs significantly exceed national norms.
Transportation Expenses for California Households
Transportation needs vary widely across California, particularly in regions where long commutes are common. The Means Test uses a national allowance for vehicle operation costs, such as gas, insurance, registration, and maintenance, and a regional allowance for vehicle ownership if you finance or lease a car.
If you use public transportation, the Means Test provides a different standardized allowance. Because vehicle expenses play a larger role for many California households, correctly applying these categories is important to ensure your Means Test reflects your realities as closely as federal guidelines allow.
How the Means Test Handles Food, Clothing, and Daily Needs
The Means Test also includes standardized IRS allowances for food, clothing, personal care items, and household supplies. These allowances are the same nationwide and do not adjust for differences in regional cost of living. They are intended to reflect reasonable amounts for essential daily needs. Even if your California household spends more than the national allowance, the Means Test relies on the standardized numbers when calculating disposable income.
When Special Circumstances Allow Additional Expenses
In some cases, additional deductions may be available for necessary expenses not covered by the standard allowances. These “special circumstances” can include medical needs, elder or dependent care, or mandatory job-related expenses. For parents, childcare may also qualify if it is essential for employment or education.
California residents often face higher costs in these categories, making careful documentation especially important. When supported appropriately, these deductions help ensure that the Means Test reflects your genuine financial obligations.
Expenses You Cannot Include in the Means Test
Certain expenses cannot be deducted under the Means Test even if they feel essential. These include entertainment, dining out, personal shopping, luxury goods, and private school tuition unless qualifying for specific exceptions. Higher-than-average California grocery or housing bills also cannot be used if they exceed the IRS allowance for that category. Understanding these limits helps you avoid errors and prevents unexpected outcomes as your filing moves forward.
How California’s Living Costs Influence the Means Test
California’s living costs shape how households experience the Means Test, even though the rules themselves are federal. Housing, transportation, childcare, and medical expenses often exceed national averages, making it especially important to apply each category correctly. Because standardized IRS figures may not match local costs, Californians benefit from careful review of how each allowance fits their circumstances.
Misinterpretation of household income, incorrect use of standardized expense figures, or overlooking special circumstances can influence whether you qualify for Chapter 7 or how your Chapter 13 repayment plan is structured. Working with an bankruptcy attorney who understands both federal bankruptcy requirements and California’s economic realities can help ensure the Means Test reflects your overall financial situation accurately.
Contact Wadhwani & Shanfeld
If you are preparing to file for bankruptcy or want clarity about how the Means Test applies to your household, we are here to help. At Wadhwani & Shanfeld, a Los Angeles bankruptcy lawyer can review your expenses, evaluate your eligibility, and guide you through each step of the process. Our board-certified bankruptcy specialists bring decades of experience serving California residents. Contact us today to schedule a free consultation.
Sources:
Bankruptcy Basics – U.S. Courts
Means Test Forms and Instructions – U.S. Courts (Official Forms 122A-1 and 122A-2)
California Courts – Bankruptcy Guide
