Is Income Earned Prior To Bankruptcy But Paid After Included In The Means Test?

31 Dec Is Income Earned Prior To Bankruptcy But Paid After Included In The Means Test?

The “Means Test” was one of the most dramatic changes in the BAPCPA legislation in 2005.  It was supposed to bring clarity to how to determine whether above income debtors can file Chapter 7, or how much they had to pay into a Chapter 13 plan.  It didn’t.

“Current monthly income” is supposed to be figured by adding all of the income received in the six-month period prior to the month that a bankruptcy petition is filed, and dividing by 6.  This, however, is not always the case.

Two courts recently reached diametrically opposite conclusions about whether “current monthly income” includes all of the income “received” during the past six-months, or whether it includes all of the income “derived” during the past six-months.

Our two Massachusetts members, Nicholas Ortiz from Boston and L. Jed Berliner from Springfield recently wrote on In re Bernard and  In Bernard, the Court held that “current monthly income” is not restricted to income a debtor derives and receives during the six months prepetition.  The income, the Court said, has to have been “derived” during the six-month period but the timeing of its actual receipt is irrelevant.  So income earned during the six-months, but not paid until later, should be included.

Three weeks after the Massachusetts case was decided, an Illinois Bankruptcy Court decided In re Burrell, which found that “Current monthly income” consists of income received during the prescribed six-month period, irrespective of when it was earned.  The Illinois Court looked back at the legislative history of the statute to find that reference was only made to when income was received, not when the income was earned.

Unless you are in the jurisdictions in Massachusetts or Illinois, you can’t really be sure what the rule will be in your district.  Perhaps the new Congress and President can fix some of the many problems caused by the badly written BAPCPA legislation which is currently our bankruptcy law.

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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