Wednesday, March 30, 2005

Bankruptcy & Expense Standards

When bankruptcy court judges sit down to determine repayment plans for Chapter 13 bankruptcy cases, one of the guideline sets they utilize is the IRS' Collection Financial Standards.

These standards are used to determine acceptable monthly expenses in areas such as food, clothing, housing, and transportation for the post-Chapter 13 consumer. Once these "standard amounts" for "basic living expenses" are subtracted from the petitioner's gross monthly pay, the court/judge can then determine just how much money remains to fund the court's constructed payment plan. It is from this amount that the consumer must pay his creditors. Thus, these IRS guidelines impact heavily upon Chapter 13 cases, which should become more and more common when the current bankruptcy reform is enacted.

I find the IRS guidelines to be pretty interesting. A family of three in my county would be allowed a housing and utilities monthly allowance of $1,074. I'm living pretty modestly (I feel), but not deprived by any means. A quick tabulation of my current 3-person housing and utilities expenses comes to about $1,020. (That does include cable, high-speed internet service, and cell phone.) I don't see any "harsh, unrealistic guidelines" here, as I've seen claimed in so many media stories (like this one) of late. I also have a tough time accepting most claims of undue hardship for those petitioners who live in "high cost of living" areas. In the case of housing and utilities, at least, the allowed expenses are calculated on a state-by-state and county-by-county basis.

The food allowance is another eyebrow-raiser. The standards here are nationally-set, with high cost-of-living allowances made only for Alaska and Hawaii. Per the IRS chart, a 3-person household with my family's monthly gross income would be allowed $622 per month for food, $204 for apparel, $108 for housekeeping supplies, and $161 for miscellaneous.

NewsFlash: With the exception of "housekeeping supplies," I do not spend anywhere near those amounts. And I'm certainly not "doing without" in any of these areas.

Now, it could very well be much different for folks in higher-cost areas of the country. But I still have a difficult time seeing all the hardships foisted upon Chapter 13 families due to these supposedly "stringent and unrealistic" guidelines.


— Posted by Michael @ 12:52 AM


Great info... you can find more on bankruptcy and the new bankrupt law here... Credit & Debt

Anonymous Jack White
, at 7:50 AM, December 01, 2005  
** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]