How To File Bankruptcy: Income For Means Testing

How To File Bankruptcy: Income For Means Testing

By |May 25th, 2013|

This is part of our series on How To File Bankruptcy.

how to file bankruptcyIncome is money that you make. And more.

When we look at the means test, we begin with a discussion of your income averaged out over the past six months.

If you’re married and living together, we look to your spouse’s income as well.

It’s all part of the quest to determine how much has come into your household.

The shameful part is that it’s not a straight line from paycheck to income.

Why Your Spouse’s Income Matters

Most of my married clients balk at the notion that their spouse’s income needs to be involved in the means test. After all, the reasoning goes, their money is theirs and not mine. If the marriage ends, the spouse gets to walk away wit his or her money.

The law reasons that there is a single household, and into that household comes money from both spouse. It’s all got to be counted so we can determine if the household is making enough to support some form of debt repayment.

It makes logical sense, after all. If your rent is $1,500 per month and your spouse contributes enough money to pay it, that’s less money you need to spend each month.

Your spouse’s separate bills and expenses will be considered later on, but in this phase of the analysis we’re going to use all of the money to find out whether the household falls above or below median income.

Income Is More Than Work

You probably think about income as being the money you make from the work you do. You’re right, but there’s more to it than that.

When you’re doing the means test, income includes money from a variety of other sources such as:

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

Feeling Rich Yet?

Once you add up all the sources of income between you and your spouse, you may feel as if there’s something wrong.

After all, just look at all that money. If it were really, income, you’d be doing far better than is truly the case.

Good thing we don’t stop here when it comes to means testing.

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.