Means Test & The Exemption See-Saw

What can my client do with non exempt cash or readily saleable items not protected by an exemption, the newbie asked.

As I looked down my list of things to do with excess cash, I saw an issue I hadn’t explored before:  some of best ways to use up non exempt cash may result in trouble on the means test.

My starting point in exemption planning is using the unprotected value to acquire something the client will need in the future.  It’s clear you could legally spend non exempt money on a fine night on the town or a vacation.  Most of my clients have unmet needs or uncertain futures, so I want any money we are spending down to benefit them in their post filing life to the greatest extent possible.

Here’s the list I posted earlier:

  1. Fund IRA’s
  2. Obtain cash value life insurance up to exemption limit
  3. Repay 401(k) loans
  4. Prepay home or auto insurance
  5. Catch up on tax under-withholding
  6. Get needed medical or dental treatment
  7. Repair the things the client has
  8. Tune-up car
  9. Stock pantry &  freezer
  10. Pay down student loans, delinquent support, priority taxes

Note that current year tax obligations, projected medical or dental treatment, delinquent support, and priority taxes are all expenses that are deductible on the means test. Thus, if you pay those expenses down to consume cash, you  reduce the deductions from current monthly income.  You may be solving the exemption problem but creating a positive number on B-22.

So, as in all things legal, the best course of action “depends”.  It depends on whether the client is above or below the median.  It depends on whether the client is filing Chapter 7, or Chapter 13, where the 401(k) loan would be deductible.  It depends how close to a presumption of abuse the calculations leave you.


  1. Do you mean you should take something like expensive dental work, get a quote from dentist, and expense it over a few years on your Schedule J?

    • Make provision for it on Schedule J. How long you expense it over is an
      unsettled question. But also include that expense in the projected medical
      expenses on the means test.


  2. I am filling out the means test and am unsure of where to put the future dental work that I need done. Does it go on line 31a ?

    Health Care
    Do not include payments for health insurance or health savings accounts listed in Line 34.

    Enter the total average monthly amount that you actually expend
    on health care that is required for the health and welfare of yourself or your dependents, that is not
    reimbursed by insurance or paid by a health savings account.If it does go there, then would you take the total amount of co-pay that would be due and divide it by 6? to break it down to a monthly amount?