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What Are Allowable & Reasonable Expenses?

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    What Are Allowable & Reasonable Expenses?

    Questions about allowed or reasonablness of expenses have been coming up a lot lately in these forums. So I want to offer a few general points.

    First, the context of expenses in BK. The puproses of listing income vs. expenses is to determine if you have any disposible income to pay something back to your creditors. This aspect of BK is overseen by the US Trustee (which is different than the BK Trustee). Afterall, the chapter 7 trustee does not want your case converted to a 13 because they don't get anything, thus, its the US trustee that looks at expenses.

    When it comes to expenses, there are two questions (1), what expenses are allowed, and (2) of those that are allowed, what is a reasonable amount for those expenses. (Side note on the new law, the new bankruptcy law will take a lot of the guess work out this as the new law will use IRS tables, but that is not a good thing in that for most people what they actually spend vs what they are allowed spend according to the IRS will vary widely).

    As for what is allowed, your starting point for expenses is to figure out what your expenses "actually" are. For those that don't use personal accounting software, start with a bank statement and figure out where your money goes. Some expenses are pretty easy, rent/mortgage, utilities, insurance, etc. Others are not so easy. About all we can assist you with in this forum is help you identify lost expenses, i.e. many people forget about hygiene and grooming, recreation, etc. Plus, there is generally time between when you decide to file and actually file, start keeping track of how you spend money on a day to day basis, are you eating lunch out every day, how often do you have to go to the store for items, etc.

    The bankrutpcy court allows expenses that are "reasonably necessary to live". The phrase is very general on purpose, but allows a variety of expenses. The obvious expenses excluded from this list are payments to unsecured creditors (i.e. your credit card payments). Another big one that doesn't count., 401K loan repayments.

    As for reasonablness, this is more of a common sense question. The bankruptcy code does not require you to be destitue to file BK, but at the same time you can't be driving a Mercedes 500 SEL with a $975 per month lease payment. Second, no one on this forum can really answer that for you, there is too much regional variation. Again, take some time to figure out your expenses and list what your expenses actually are. Generally, when someone asks me if an expense is reasonable, my reply is, "is that what you actually spend". If yes, then there is not much else you can do.

    In general, an experienced attorney in your area can assist you with determining what is reasonable.
    Last edited by HHM; 11-13-2006, 11:24 AM.

    Note, this thread is only useful under the old law (pre Oct. 2005). The new law has different criteria for expenses.


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