Expensive Childcare Might Be A Bankruptcy Blessing in Disguise
A recent study found that Massachusetts was one of the most expensive states in the country for the average cost for center-based childcare. While the statewide average cost is $1,369.16 per month, parents in Boston may expect to pay upwards of $2,500 per month.
This is particularly concerning because research has shown that having a child is the single best predictor of financial problems. Raising children is expensive, and nearly 1 in 7 families with children may file for bankruptcy at some point.
To combat the costs of childcare, the government has established many programs to help parents though tax credits and subsidies. Federal bankruptcy laws were also written with concern for childcare costs in mind.
In order to file bankruptcy, a consumer must complete a Means Test form, which is intended to calculate your monthly disposable income. In a Chapter 7, the form is used to determine your eligibility. In a Chapter 13, the form is used to calculate your plan payment terms.
If your household income is below the statewide median income for your family size, then you automatically qualify for Chapter 7 (or a 3 year repayment plan in a Chapter 13). If your income is above this threshold, though, you must complete a detailed analysis of monthly income and expenses. Not all expenses are deductible though. Fortunately, in this circumstance, the high costs of childcare can be quite helpful.
On the Means Test, monthly childcare costs are fully deductible without limitation. While receipts may be required to verify the amount spent, there is no cap on this potential deduction.
Similarly, the monthly costs of child education are deductible, up to approximately $150 per child. This may include costs of school supplies as well as school tuition.
Depending on your circumstances, these deductions may help you confirm eligibility for a Chapter 7, or reduce your monthly payment in a Chapter 13.
In many cases, Means Test calculations can be very complex, so be sure to speak with an experienced attorney first. Please contact us today for a free consultation.
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Culik Law is a Massachusetts Attorney / Law Firm. The posts on Culik Law’s blog are not intended as legal advice. If you have questions about your particular situation, CONTACT CULIK LAW for a Free Consultation.