What is Income for Bankruptcy?

05 Nov What is Income for Bankruptcy?

Most of us have an idea of what income is for federal or state tax purposes. Wages are income, as are gains on the sale of stock. Dividends and interest also qualify. We know that. It’s intuitive and easy to understand.

The classic definition of income is that it’s the return on labor or capital. In fact, if you look through the kinds of things which are considered income in the Tax Code, the “usual suspects” appear in section 61: rents, interest, compensation, alimony, annuity, pensions, among others.

But then comes bankruptcy world

When we get to bankruptcy world, it’s not so intuitive. Various things are income in bankruptcy world that the Tax Code would not consider income. For example, an inheritance, a gift, child support, and disability payments–even those not taxed–are income for bankruptcy purposes.

The bankruptcy world definition of income I use is this: “anything that comes in.” (Get it? In….Come.) If if hits your hands or your bank account, it’s income. That gift from mom for $2000 to help you make ends meet, contributions to your household expenses, an inheritance, child support, you name it. There are some exceptions to this rule, but you need to tell your bankruptcy lawyer about everything you’ve received so that “income” can be disclosed.

Don’t worry about the exceptions

There are some income sources which are not part of your CMI (“current monthly income”) such as Social Security and, depending on the views of your particular judge, unemployment. Also, I don’t know of anyone who would consider all the money you’d received from the sale of an asset as income. Only the gain would be income. Most of the time, assets are never sold at a gain. Likewise loan proceeds would not be considered income.

But don’t worry about the exceptions. Your job is to tell your lawyer everything. Don’t exclude something just because it’s not taxed.

 

 

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Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer who represents consumer debtors in Chapter 7 and Chapter 13 bankruptcy. He is the author of the Charleston Bankruptcy Blog. He is also a member of the South Carolina Bankruptcy Blog. He files bankruptcy cases for clients in the Charleston, South Carolina division, which runs from Myrtle Beach to Beaufort. The DeMott Law Firm also represents clients in foreclosure defense and mortgage modification. You can also connect with Russ on Google Plus Russell DeMott. Russ can be contacted directly at (843) 695-0830 or by email at russ@demottlawfirm.com.
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