What Income Counts on the Means Test
Filing for bankruptcy is a significant step towards regaining financial stability, and the means test plays a pivotal role in determining eligibility, especially for Chapter 7 bankruptcy. This test assesses your financial situation to decide if your income is low enough to file for Chapter 7, or if you should consider Chapter 13 instead. Understanding what constitutes income in the means test is crucial for preparing your bankruptcy case accurately. Let's delve into the types of income included in the means test and how they impact your bankruptcy filing.
The Basics of the Means Test
The means test compares your average monthly income for the six months prior to filing against the median income for a household of your size in your state. If your income is below the median, you're eligible for Chapter 7 bankruptcy. Otherwise, you might need to file for Chapter 13 bankruptcy, which involves repaying a portion of your debts through a repayment plan.
Types of Income Included in the Means Test
1. Employment Income: This is the most straightforward income type and includes wages, salaries, tips, bonuses, overtime, and commissions.
2. Business Income: For self-employed individuals and business owners, net business income is considered. This means your gross income minus business expenses.
3. Rental and Property Income: Any income from rental properties or real estate investments is included, minus necessary expenses related to generating that income.
4. Interest, Dividends, and Royalties: Income from investments, including stocks, bonds, and intellectual properties, counts towards your total income.
5. Retirement Income: This encompasses pensions, IRAs, and 401(k)s, except for Social Security benefits, which are generally excluded from the means test.
6. Unemployment Compensation: While often a temporary source of income, unemployment benefits are included in the means test calculation.
7. Alimony and Child Support: Payments received for alimony or child support contribute to your income calculation for the means test.
8. Other Sources: This can include, but is not limited to, disability insurance benefits (unless exempted by state law), workers' compensation, and certain public benefits.
What's Not Included?
Not all forms of income are included in the means test. Notably, Social Security and Veteran Affairs benefits are typically excluded, along with tax refunds and benefits received for being victim of a crime.
The Role of Allowable Expenses
It's also essential to understand that the means test allows for the deduction of certain IRS-standardized expenses, such as living expenses, taxes, health care, and education costs. These deductions can significantly impact the calculation, potentially qualifying you for Chapter 7 bankruptcy even if your gross income seems too high at first glance.
Final Thoughts
Accurately assessing income for the means test is a nuanced process that can greatly influence your bankruptcy filing's outcome. Given its complexity, consulting with an experienced bankruptcy attorney at Pioneer Bankruptcy is highly advisable. They can help you navigate the intricacies of the means test, ensuring that all income is correctly reported and maximizing your chances of passing the test. Remember, the goal of bankruptcy is to offer you a fresh start, and understanding the means test is the first step on that journey.