IRS changes for Means Test effective Jan.1

[JRTLover]

This article/blog can be found at:

http://www.bankrate.com/brm/news/ban...tcy-update.asp


Change to consumer bankruptcies

A slight change to consumer bankruptcies may affect you.

It deals with a certain test.

Debtors filing bankruptcy may need to take the "means test."

Supporters of reforming the bankruptcy code wanted to make sure you weren't going to try to trick the system and that you are, in fact, broke. They came up with a mathematical equation to see if you can still repay your creditors. The test calculates your monthly income minus certain allowable expenses.

So, if you can repay your creditors, while still covering a set of allowable expenses required to keep your household running, you will be in a three- to five-year Chapter 13 bankruptcy plan. If you can't, then you are able to erase most of your debts in a Chapter 7 liquidation bankruptcy.

Guess what? Those allowable expenses are getting a little update.
The Internal Revenue Service redefined the standards to incorporate:
# A new category for out-of-pocket health care expenses.
# The elimination of income ranges for national standards for food, clothing and other items.
# A nationwide set of tables for national standard expenses, eliminating separate tables for Alaska and Hawaii.
# An expanded number of household categories for housing and utilities.
# An allowance for cell phone costs in housing and utilities.
# Equal allowances for first and second vehicles under transportation expenses.
# Fewer Metropolitan Statistical Areas for vehicle operating costs.
# A separate nationwide public transportation allowance.

The change is expected to go into effect Jan. 1, 2008.

Has the "means test" been effective? Tell us at [email protected].

[mysterie91]

No Comments about this?

I am amazed there has been no discussion about this yet this AM. Does anyone have any idea what this really means. Would it be better to wait until after Jan 1 2008 to file? Thoughts...anyone ... ??

[kiddles]

I'm looking for the link to the actual info - that'll make it easier to decide if it will help or hurt most filers. I'll post if I find it - inless someone beats me to it!

Found it:

http://www.irs.gov/individuals/article/0,,id=96543,00.html

[mysterie91]

Here is what I found. Use the link to see the actual monetary figures.

Seems the forms will need to be revised as well? Seems that the changes don't fit into the current forms so it is hard to figure the exact impact. Anyone else care to comment?

Source: http://www.irs.gov/individuals/artic...=96543,00.html

Collection Financial Standards

Disclaimer: IRS Collection Financial Standards are intended for use in calculating repayment of delinquent taxes. These Standards are effective on October 1, 2007 for purposes of federal tax administration only. Expense information for use in bankruptcy calculations can be found on the website for the U. S. Trustee Program. For bankruptcy purposes, the effective date for the standards will be January 1, 2008, to allow for the orderly administration of the bankruptcy laws.
General

Collection Financial Standards are used to help determine a taxpayer's ability to pay a delinquent tax liability. Allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer’s (and his or her family's) health and welfare and/or production of income.

National Standards for food, clothing and other items apply nationwide. Taxpayers are allowed the total National Standards amount for their family size, without questioning the amount actually spent.

National Standards have also been established for minimum allowances for out-of-pocket health care expenses. Taxpayers and their dependents are allowed the standard amount on a per person basis, without questioning the amount actually spent.

Maximum allowances for housing and utilities and transportation, known as the Local Standards, vary by location. In most cases, the taxpayer is allowed the amount actually spent, or the local standard, whichever is less.

Generally, the total number of persons allowed for necessary living expenses should be the same as those allowed as exemptions on the taxpayer’s most recent year income tax return.

If the IRS determines that the facts and circumstances of a taxpayer’s situation indicate that using the standards is inadequate to provide for basic living expenses, we may allow for actual expenses. However, taxpayers must provide documentation that supports a determination that using national and local expense standards leaves them an inadequate means of providing for basic living expenses.


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National Standards: Food, Clothing and Other Items

National Standards have been established for five necessary expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous.

The standards are derived from the Bureau of Labor Statistics (BLS) Consumer Expenditure Survey (CES). The survey collects information from the Nation's households and families on their buying habits (expenditures), income and household characteristics.


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National Standards: Out-of-Pocket Health Care Expenses

Out-of-Pocket Health Care standards have been established for out-of-pocket health care expenses including medical services, prescription drugs, and medical supplies (e.g. eyeglasses, contact lenses, etc.).

The table for health care allowances is based on Medical Expenditure Panel Survey data and uses an average amount per person for taxpayers and their dependents under 65 and those individuals that are 65 and older.

The out-of-pocket health care standard amount is allowed in addition to the amount taxpayers pay for health insurance.


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Local Standards: Housing and Utilities

The housing and utilities standards are derived from Census and BLS data, and are provided by state down to the county level. The standard for a particular county and family size includes both housing and utilities allowed for a taxpayer’s primary place of residence.

Housing and Utilities standards include mortgage or rent, property taxes, interest, insurance, maintenance, repairs, gas, electric, water, heating oil, garbage collection, telephone and cell phone. The tables include five categories for one, two, three, four, and five or more persons in a household.



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Local Standards: Transportation

The transportation standards for taxpayers with a vehicle consist of two parts: nationwide figures for monthly loan or lease payments referred to as ownership costs, and additional amounts for monthly operating costs broken down by Census Region and Metropolitan Statistical Area (MSA). A conversion chart has been provided with the standards that lists the states that comprise each Census Region, as well as the counties and cities included in each MSA. The ownership cost portion of the transportation standard, although it applies nationwide, is still considered part of the Local Standards.

The ownership costs provide maximum allowances for the lease or purchase of up to two automobiles if allowed as a necessary expense. A single taxpayer is normally allowed one automobile.

The operating costs include maintenance, repairs, insurance, fuel, registrations, licenses, inspections, parking and tolls.

If a taxpayer has a car payment, the allowable ownership cost added to the allowable operating cost equals the allowable transportation expense. If a taxpayer has a car, but no car payment, only the operating costs portion of the transportation standard is used to figure the allowable transportation expense. In both of these cases, the taxpayer is allowed the amount actually spent, or the standard, whichever is less.

There is a single nationwide allowance for public transportation based on BLS expenditure data for mass transit fares for a train, bus, taxi, ferry, etc. Taxpayers with no vehicle are allowed the standard, per household, without questioning the amount actually spent.

If a taxpayer owns a vehicle and uses public transportation, expenses may be allowed for both, provided they are needed for the health, and welfare of the taxpayer or family, or for the production of income. However, the expenses allowed would be actual expenses incurred for ownership costs, operating costs and public transportation, or the standard amounts, whichever is less.




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Recent Revisions

The Collection Financial Standards were revised on 10/01/07 to:

• Eliminate income ranges for National Standard Expenses
• Eliminate separate tables for Alaska and Hawaii, creating one set of tables for National Standard Expenses
• Create a new National Standards category for Health Care
• Expand the number of household categories for Housing & Utility Expenses
• Include an allowance for cell phone costs in the Housing & Utility Expenses
• Create equal allowances for first and second vehicles under Transportation Expenses
• Create a separate nationwide Public Transportation allowance
• Metropolitan Statistical Areas (MSAs) for Milwaukee, Cincinnati, Kansas City and Tampa were not included in the BLS CES statistics used for 2007 transportation operating expenses. Taxpayers residing in the counties previously covered by these MSAs will now use the applicable regional numbers.
• The revised standards are effective for financial analysis conducted on or after October 1, 2007.

[kiddles]

It looks to me like it will help a few more of the "right on the edge of a 7" filers be able to fi.le a 7 rather than a 13. The changes aren't so large that gobs and gobs of 13's will be able to be 7's, but should help a few get to a 7.

[BKTango]

Honestly it probably isn't going to be some dramatic change that will effect alot of filers. Basically what it's looking like right now is what people already budget into their means test and expense schedule. Only after the change, there's an actual line to put certain expenses instead of lumping them in with other expenses. For example, the out of pocket medical had to be lumped into your medical or food budget. Same with cell phones those had to be lumped in with regular phone service. Basically they have created the extra categories so people would not have to keep lumping them together, therefore possibly creating a "gray" area of where and what your money actually goes on a month. As far as the standards or allowances increasing, I'm sure they have to do that from time to time to keep up with how life is in general, just like when they increase the exemptions.

[Granny]

The standards appear to go up a few dollars for a family of 4.

The out of pocket health care costs is new to this mix and from and IRS collection point it is a given without needed documentation unless the expense exceeds the standard.

As previously commented, it allows for cell phone to be combined with other utilities so maybe the pickier trustees will be more accepting. Based on the old standard for housing for my area, they are allowing about 75.00 per month increase with the new standard.

[anonymuse]

I think it will be fairer to use actual costs than these "standard" values--which, in some cases may change the some from 13 to 7 and vice versa. I just don't like "standards" since there is so much variance.

[mysterie91]

So forgive me if this sounds dumb but...

It seems that as these numbers change the forms will need to change to really determine how this affects each person? Do you guys expect that the Means Test forms for 13 and 7 will change January 1 to accomodate these new ways of calculating or will just the income and expense statements change?

Sorry if this is a dumb question - trying to determine what will be the best time to file as we are really close to the edge of not being able to file 7.

[fabala]

It seems that as these numbers change the forms will need to change to really determine how this affects each person? Do you guys expect that the Means Test forms for 13 and 7 will change January 1 to accomodate these new ways of calculating or will just the income and expense statements change?

I think the forms are changing. My attorney said that she would "run my numbers" both for filing before Jan 1 and after Jan 1 to see what the difference would be. I also have an expected bonus in December that she will take into consideration.

[wingnut]

Streamlining?

Hey,

This seems more like a streamlining effort than anything else. Instead of having to examine / confirm the various expenses, each household gets a standard amount.

Which might be better if you're on the edge. It's good to hear that your attorney is running the #'s for both scenarios. Waiting another month and a half to file might not only help you, but also make it easier on your attorney, and probably the trustee as well.

Good Luck,

WINGNUT

[lrprn]

The US Courts state that the main consumer bankruptcy forms B22A for Ch 7 and B22C for Ch 13 have *NOT* been revised yet - http://www.uscourts.gov/bankform/

"The Judicial Conference deferred action on proposed amendments to Official Forms 22A, 22B, and 22C after the Internal Revenue Service revised its Collection Financial Standards. Because information from the National Standards, Local Standards, and Other Necessary Expenses set out in the IRS document are incorporated in the three "means test" forms, those forms will be revised. Draft copies of the revised forms will be posted here when they are available. It is anticipated that the revisions to Official Forms 22A, 22B, and 22C -- if approved by the Judicial Conference -- will be effective on January 1, 2008."

Now that the IRS has just completed their revisions, the Judicial Conference will look at revising B22A and B22C to reflect those changes.

Bottom line....there aren't new consumer bk forms to see yet....we'll have to keep checking the US Courts website to see if/when the new forms go into effect and what they will look like. Until then, it's just a guessing game.

[phoenix44212]

Looks like these might be the ones.

Looks like these might be the ones.

http://www.uscourts.gov/bankform/