I receive Social Security benefits in addition to my employment income. Can I still pass the chapter 7 bankruptcy means test? Are these types of income counted?
If you receive Social Security benefits, you are not required to include that income on the Chapter 7 bankruptcy means test. This means that whether you pass the means test depends on the amount of your income excluding Social Security. Read on to learn more about how you can pass the means test even if you collect Social Security benefits in addition to employment income.
In order to qualify for Chapter 7 bankruptcy, you must not have the means to pay back your unsecured creditors. As a result, Congress created the means test to determine who is eligible to file for Chapter 7 bankruptcy. Here is how it works.
On the means test, you are required to disclose your income from almost all sources (with a few exceptions including Social Security benefits) received during the six-month period prior to filing for bankruptcy. The means test uses these figures to calculate your current monthly income (CMI).
If your annualized CMI is less than the median income of your state for a similar household, you automatically pass the means test. If your CMI is above median, you need to complete the rest of the form and take your expenses into account to determine if you qualify.
(For more details on the means test and how it works, see our Chapter 7 Means Test topic area.)
To calculate your CMI, the means test combines your monthly income from almost all sources. However, benefits received under the Social Security Act are one of the few exceptions. Social Security benefits don’t count as income for means test purposes.
As a result, you are not required to list your Social Security income on the means test. This means that it is not part of your CMI calculation and does not affect whether you pass the means test or not.
Example. Steve has a job and makes $3,500 a month from his employment. In addition, he collects $1,000 a month from Social Security. He is single and has no other sources of income. The median income for a single-person household in his state is $48,000 per year ($4,000 per month). Even though Steve has a total monthly income of $4,500, he is not required to include his Social Security income on the means test. This means he still passes the means test automatically because his CMI for means test purposes is only $3,500, which is below the state median.
In addition to completing the means test, you must disclose your current budget on Schedules I and J of your bankruptcy paperwork. Schedule I is a snapshot of your current income as of the time of filing your bankruptcy while Schedule J is a list of your current expenses.
Even though you are not required to list your Social Security income on the means test, you must include it on Schedule I when calculating your budget. Be aware that if your budget shows a significant amount of disposable income each month, you may still be disqualified from filing for Chapter 7 based on a lack of good faith even if you pass the means test.
by: Baran Bulkat, Attorney