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Bankruptcy and Education Expenses

The main purpose of the bankruptcy means test is to prevent wealthy debtors from filing for Chapter 7 Bankruptcy. Debtors who earn more than their state’s median income for their family size must complete the means test to determine eligibility. The means test deducts reasonable and necessary expenses from average income. If there is sufficient “disposable income” after these expenses are deducted, then the debtor is ineligible for Chapter 7 bankruptcy.

One of the expense items available on the current means test (Form B22A) is Line 38, which allows an “education expense for dependent children less than 18 years old.” This item is a source of confusion to many debtors (and to some bankruptcy attorneys!). The total allowed monthly expense is capped at $156.25 per child ($1,875 per year) for attendance at a private or public elementary or secondary school.

For school-age parents, this seems like a welcome deduction. However, the Bankruptcy Code is not very generous with this deduction. Section 707(b)(2)(A)(ii)(IV) of the Bankruptcy Code states:

In addition, the debtor’s monthly expenses may include the actual expenses for each dependent child less than 18 years of age, not to exceed $1,875 per year per child, to attend a private or public elementary or secondary school if the debtor provides documentation of such expenses and a detailed explanation of why such expenses are reasonable and necessary, and why such expenses are not already accounted for in the National Standards, Local Standards, or Other Necessary Expenses referred to in subclause (I).

First, this deduction is only for elementary and secondary school children under the age of 18 at the time of filing. Preschool or child care expense should be listed on Line 30 as “Other Necessary Expenses: childcare.” Tuition and expenses for college age children are not an allowable expense on the means test.

Some additional expenses not allowed on Line 30:

  • School lunches, which are included in National Standards on line 24.
  • Any educational program or service (including tutoring) that is not offered through a public or private elementary or secondary school. On the other hand, the official Department of Justice position is that home school expenses can qualify.

Any claimed educational expense must be documented and you must explain why the amount claimed is reasonable and necessary, and not already accounted for in the IRS Standards. Courts that have examined this issue have looked to the Internal Revenue Manual and held that educational expenses are deemed “necessary” only if the education producing the expenses is required for a physically or mentally challenged child and no public education providing similar services is available. It is therefore incumbent on the debtor to be able to explain why the expense is “necessary.” Most bankruptcy Trustees (and courts) will consider private school education a “luxury” when public school is available.

Passing the Chapter 7 bankruptcy means test is challenging. The experienced bankruptcy attorneys at Fears Nachawati Law Firm can help you navigate through this formidable test and produce the best result for you and your family. For a free consultation, click here or call our office at 1.866.705.7584.