Completing the Means Test is a critical step in evaluating your financial situation, specifically focusing on your income. This test serves as a key factor in determining whether you have the financial means to repay your creditors. In this discussion, we will closely examine what constitutes income for means test purposes, shedding light on what falls within the scope of inclusion and exclusion.
Definition of Income
Virtually all forms of money received or paid on your behalf are considered in the Means Test, with a notable exception being Social Security. The statutory language (Section 101(10A) of the Bankruptcy Code) directs the inclusion of income from all sources, regardless of its taxability. This encompasses any money paid on your behalf by friends, family, or anyone else, emphasizing that it’s paid for you. However, benefits received under the Social Security Act are excluded from the means test calculation (although not from Schedule I).
Income From All Sources
This inclusive approach extends to various sources, including income and payments from non-traditional places. From an employment perspective, all gross wages or salary, tips, overtime, shift differentials, and commissions are included in the Means Test, without subtracting any tax or other deductions (for Part 1 of the Means Test).
For those involved in business, farming, professions, or real estate, all gross receipts over a 6-month period are included. While operating expenses can be subtracted, they must be deemed “ordinary and necessary.” If expenses exceed income, a negative “net” amount is not applicable, and it is recorded as $0.
Special Circumstances:
Interest, dividends, and royalties constitute another category for income reporting. Even dividends or proceeds automatically reinvested from investments, such as stocks, must be included. Pension and retirement income, excluding Social Security, must be accounted for. This includes non-Social Security governmental and private retirement income, as well as funds from 401(k)s and IRAs. Notably, early withdrawals count as income, emphasizing the importance of avoiding withdrawals from your retirement during financial difficulties.
Unemployment compensation is included, though some argue that certain types of benefits may be excluded under the Social Security Act. Consulting with an attorney is advisable in such cases. While Social Security disability benefits are exempt, private disability insurance benefits are considered income.
Payments made by others for household expenses, regardless of frequency or agreement, are included. This encompasses payments from roommates, partners, family members, and even child and spousal support. Additionally, other sources of income, such as gambling gains, cash gifts, bitcoin profits, litigation proceeds, and trust income, must be included in the Means Test.
In the realm of income considerations, it’s important to note that two items fall outside this classification. From my experience, tax refunds and repayments received on a debt owed to you are not categorized as income for the purpose of the means test.
Understanding the intricacies of income for means test purposes is crucial for making informed decisions when navigating the bankruptcy process. If you require guidance, consulting with an experienced attorney can provide valuable insights tailored to your specific situation.
