How to file bankruptcy – #7 of a series – What’s income for the means test?

17 Mar How to file bankruptcy – #7 of a series – What’s income for the means test?

Most people find the Means Test a pain the butt. I do. One thing clients don’t understand is why their spouse’s income matters even if their spouse isn’t filing a bankruptcy case.

That’s because Congress says it matters. If you are receiving support in your household from your spouse, then you’re supposed to have that much more money available for your creditors even if you, yourself don’t make all that money. So let’s say you are a stay-at-home parent and make little money – maybe $1,000 a month baby sitting. Your spouse on the other hand makes $150,000/year at a nice professional job. Your family income is $162,000/year and all of it is to be considered for the purposes of the means test. Your spouse’s separate bills and expenses can be considered too but the overall income of the family is used to determine if you “pass” the means test.

Another issue which comes up all the time is income from sources other than work. Some sources of “other income” could include:

  • Interest
  • Dividends
  • Pension income
  • Bonus payments
  • Child support and alimony or maintenance payments
  • Disability payments under workers compensation or private insurance

Some other sources of revenue to the family which may or may not be income include:

  • Withdrawals from IRA and 401k plan
  • Income tax refunds

Some sources of revenue are not income for purposes of the means test:

  • Social security payments
  • Unemployment benefits

Obviously, you have to figure out your income before you can consider whether you have “current monthly income” above the “median” for your state.

Although I’m not your lawyer, I do have some advice for you. Don’t do this at home!

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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