Don’t underestimate your expenses. Your expenses can be estimated within the limits of realistic planning, in a way that presents your case in a favorable light.
The key to completing the expense category correctly is to realize that it is important to look not only at current expenses but also “unmet” needs in order to determine a reasonable budget going forward.
For instance, Congress has made it very clear that debtors have the right to maintain or obtain health insurance for themselves and their families. This is a good example of an unmet health insurance expense.
In a chapter 7, it is not wise to show a great deal of income not needed for reasonable living expenses if that can be truthfully avoided.
The following are expenses that are often overlooked or underestimated:
- Health Insurance – debtors who do not have adequate health insurance should consider obtaining it prior to filing;
- Uninsured medical expenses – these often include co-pays and deductibles, nonprescription drugs and vitamins, contact lenses and fluid, and checkups;
- Dental care – many debtors need dental work which they have deferred because they cannot afford it;
- Eye care – regular vision checkups and glasses or contact lenses are not covered by most health insurance plans;
- Child care – debtors may have been imposing on family members out of necessity, and can consider whether their children would be better off in day care;
- Home maintenance – an amount should be budget for home maintenance, including both unexpected repairs of old systems and appliances, and tasks such as painting and roof repairs that may occur only once every four or five years, as well as lawn care, snow removal, and other necessary services a debtor cannot perform herself;
- School expenses and children’s activities – children have expenses for a variety of school activities, school lunches, uniforms, music lessons, scouting expense, or sports fees;
- Automobile maintenance – debtors with no immediate repair needs often ignore the fact that maintenance of an older car usually exceeds $1,000 per year – even with a newer car, oil changes and other maintenance add up to a significant amount annually;
- Alarm service – in many urban areas, a burglar alarm is considered a reasonable expense;
- Pest control – in some areas pest control is necessary;
- Personal care – haircuts and the like, especially for a family with children, add up to a considerable amount each month;
- Baby supplies – diapers and clothes for small children, add up to a considerable amount each month;
- Cigarettes – for debtors who are addicted to smoking, most courts have allowed this considerable expense as reasonable, especially because the only alternative may be smoking cessation programs at even greater expense;
- Charitable deduction – the law clearly allows debtors to make reasonable religious or charitable donations;
- Tax return preparation fees – courts allow debtors to pay reasonable amounts for tax return preparation;
- Pet expenses – reasonable expenses for pets, including food and occasional visits to the veterinarian, are rarely questioned;
- Bank charges – ATM fees and other bank charges, such as monthly account fees;
- Christmas and birthday gifts for family members – few judges would begrudge debtors the ability to give modestly priced presents to their children;
- Work expenses – debtors may have to pay for uniforms or tools, or parking for work, and there may be reasons debtors must purchase meals at work;
- Annual automobile registration and license expenses – these expenses are sometimes considerable, and are often forgotten because they are paid only once a year;
- Life insurance – if debtors have any dependents and do not have life insurance, the purchase of term life insurance would be clearly be considered reasonable.
The key to remember is that expenses in the bankruptcy petition are estimates of future expenses so you have some latitude to obtain good faith estimates.
Don’t skimp on your expenses and be sure to be “reasonable” in all your calculations.