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Means test: A way to determine Chapter 7 eligibility

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 22nd Jul, 2009 11:13am
If you really find it tough to repay your loan and if you are almost about to be sued by the lender, then one option available before you is Chapter 7 bankruptcy. Here the bankruptcy court sells your nonexempt property so as to pay off as much of your debt as possible.

However, in order to qualify for Chapter 7 bankruptcy filing, you need to pass the Chapter 7 bankruptcy means test. This means test is used to determine whether or not your income is low enough to file Chapter 7 bankruptcy. If your income is high enough then you won’t pass the test. Then you won’t be able to use Chapter 7 bankruptcy to eliminate your debts altogether. In that case, you may have to file the Chapter 13 bankruptcy so as to repay a portion of your debts.

Under means test, the average of your current monthly income for the past 6 months is calculated. Thereafter, the average is multiplied by 12 so as to arrive at annual income and then it is compared with median income of the same-sized family in that state. If your income is less than the median income, then you pass the test and can use Chapter 7 bankruptcy. Otherwise, you have to go for Chapter 13 bankruptcy. Following is the list of items that are considered while calculating your current monthly income under means test:

  • Income earned from wages, tips, and bonuses or business

  • Interest, dividends, and royalties

  • Pension and retirement income

  • Child support

  • Unemployment benefits

  • Windfall income

  • Rental property income

  • Social security disability benefits

  • Annuity payments

Posted on: 22nd Jul, 2009 11:13 am
My pension and SSN are exempt from taking if I go through CH13 so it seems ridiculous to include them as income when doing the CH7 means test. What is the latest information on "do I include state pension and SSD from CH7 means test. ?

pension and 401(k) or 403(b) retirement plans protected by the employee retirement income security act are unaffected by chapter 7 bankruptcy.

social security benefits are also protected from legal actions while you're in bankruptcy. traditional and roth iras (individual retirement accounts) are exempted up to $1 million as per bankruptcy law enforced in 2005.
Posted on: 22nd Jul, 2009 11:48 am
The problem though is that local attorneys say I must include SS & Pension when figuring the means test for chapter 7. If I do that then I am over and must file a CH13 which in turn cost much more but will ultimately say "hey, this guy has no income and must be discharged". Seems like a waste of time but it does make more money for the attorney.
I'd like to find an attorney that did not force me to list it as income on the means test. I live in Florida.
Posted on: 24th Jul, 2009 05:55 am
pension is not included in income.
so not to worry
Posted on: 24th Jul, 2009 06:16 am
I receive social security and retirement from a teacher's pension system. Are they included as income for the means test? I live in AZ if that is important.
Posted on: 25th Aug, 2009 07:32 pm
Welcome karrin,

Social security payments are excluded from the calculation of income for purposes of the means test. They will not be included in your means test.
Posted on: 25th Aug, 2009 09:58 pm
Why is teacher's pension included in the means test, but social security isn't?
Posted on: 03rd Oct, 2009 09:15 pm
pension is a regular income for you. same is not the case with social security.
Posted on: 04th Oct, 2009 01:12 am
my question is: in the middle of a chapter 13 bankruptcy i learned that i was going to receive a partial lump sum disbursement from my pension. do i have to report this amount to the bankruptcy trustee?
Posted on: 24th Jan, 2011 12:51 pm
Hi Missy!

Welcome to forums!

It will be better if you could report the amount to the bankruptcy trustee. The trustee may use it to pay off the dues of your creditor.

Feel free to ask if you've further queries.

Posted on: 24th Jan, 2011 09:57 pm
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