What Income Is Included In The Means Test?

Congress, through its enactment of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), created what is known as “The Means Test” to determine potential bankruptcy debtors’ ability to repay any of their general unsecured debt. Debtors compute their income as defined by federal law and, if it exceeds a certain median threshold based on the size of their household, may not file a Chapter 7 case, but must instead file a Chapter 13 case and plan of repayment.

The income that a debtor calculates for the means test includes all monies received or paid on behalf of the debtor except for Social Security income. Specifically, the U.S. Bankruptcy Code provides that the means test includes income from all sources that the debtor receives without regard whether such income is taxable income (and) includes any amount paid to any entity other than the debtor on a regular basis for the household expenses or the debtor or the debtor’s dependents but excludes benefits or income received under the Social Security Act.

Thus, income that must be included consists of all income received from an employer including wages (gross), commissions, tips, and overtime. Obviously, income from the operation of a business is included, along with real estate income.

The means test measures a debtor’s income received during the six-month period that ends on the last day of the month prior to the month that the bankruptcy case is (will be) filed. All gross income during this 6-month period is included, whether received in the form of wages, commissions, tips, overtime, business income, interest, dividends, royalties, pension income, and retirement income. Thus, private disability insurance benefits other than Social security disability benefits are included, as is any other private retirement income derived from 401(k)s and IRAs.

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