When money gets tight, a person must make hard choices. In some cases that means reducing or eliminating services that the person really needs, like health insurance or contributions to a health savings account. This begs the question whether a debtor in Chapter 13 bankruptcy can claim an expense for health insurance when has not been paying for it.
The answer to this question is found in Section 707(b) of the bankruptcy Code (actually 707(b)(2)(A)(ii)(1)), which states that the debtor’s monthly expenses “shall include reasonably necessary health insurance, disability insurance and health savings account expenses…” This means that the debtor can deduct the costs of health insurance that he ought to have but does not currently have. There is magic in describing health expenses as “reasonably necessary” because it frees this section from expenses deductions prescribed by IRS standards. It also makes it unnecessary to show a payment history of such expenses.
Even if the debtor doesn’t currently have health insurance, disability insurance, and a health savings account, he can deduct the “reasonably necessary” costs when calculating the disposable income available to pay his unsecured creditors. There is even a box to check on line 34 of B-22A of the means test to indicate that the debtor isn’t currently paying those items.
Since a Chapter 13 bankruptcy case lasts from three to five years, it is important to budget for health insurance, disability insurance and a health savings account. This not only immediately reduces the amount you pay creditors each month, it also protects your future should you have an illness.
If you are financially strapped and considering bankruptcy, speak with an experienced bankruptcy attorney and learn how the bankruptcy laws make it possible to repay, reduce, or eliminate your debts while providing a decent living for you and your family. Let the federal law work for you!