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What Is Income for Bankruptcy Means Test Purposes?

All Earnings Other than Social Security Income or Disability Benefit—in Michigan

income for bankruptcy means test

Most Recent 6 Months: The Means Test “Look-Back” Period

The “means test” is the mathematical formula used in bankruptcy to determine your eligibility for filing a Chapter 7 bankruptcy and to determine in a Chapter 13 bankruptcy whether you are eligible to propose a 36-month payment plan or must propose a longer payment plan, and whether there is any minimum amount of money your unsecured creditors must receive through your plan in order for the case to be approved by the court.

For either purpose, the mathematics of the means test draws upon the gross income (not “net,” after taxes, insurance, and other deductions) earned from all sources over the 6 months before the month in which you file the Chapter 7 or Chapter 13 bankruptcy case.

Thus, if you were to file a Chapter 7 bankruptcy in the month of the posting of this article, October, 2013, the means test would look back at the income you earned April 1, 2013 through  September 30, 2013. If you happened to receive an annual bonus or had a couple of months with an above-average amount of overtime in that 6-month period, your means test might produce an unfavorably high income average that could jeopardize your Chapter 7 eligibility chances.

That is, the means test averages all of that income earned, multiplies that average by 12 (months) to produce a hypothetical household annual income, then compares that household income to the median income for a household of your size.

If the means test income average is above the median, you are not eligible for Chapter 7 bankruptcy and must file a Chapter 13—and, in a Chapter 13, you will need to file a 60-month payment plan unless you can repay 100% of your debt in fewer months.

A common question, then, is, “What income must be included?”

So—What Is Income for Bankruptcy Means Test Purposes?

The means test calculation is concerned with what the Bankruptcy Code calls “current monthly income,” or “CMI.” The definition of CMI in the Code includes all income earned except for Social Security Act benefits and payments to victims of war crimes or crimes against humanity, or payments to victims of international terrorism.

So does that definition mean what it says? Does it also include pension benefits, unemployment benefits, financial assistance from a relative, and other non-traditional sources of income?


At least, here in the Eastern District of Michigan. The question of whether unemployment benefits, for example, constitute CMI that can be calculated in the means test varies by jurisdiction across the US and swings on judicial decisions concerning whether unemployment benefits in any particular case can be construed as benefits “under the Social Security Act” or not. There is a split of authority arising from different bankruptcy courts in different parts of the US on this question.

Income for Bankruptcy Means Test: The Bottom Line

The bottom line regarding income for the Chapter 7 or Chapter 13 bankruptcy means test is that you cannot assume that any monies you have received in the past 6 months need not be calculated in your means test—or disclosed to your bankruptcy attorney.

If your mother-in-law gave you a one-time gift of “tide-me-over” money, one time, that may not be CMI for means test purposes—but, if she did it regularly or even semi-regularly, it likely is. If you are over 65 and are receiving regular monthly distributions from an IRA or other retirement account, you cannot assume that this is not income.

You need to retain an experienced bankruptcy attorney to ensure that your means test is properly calculated—and fully disclosing of all “income.”

You are entitled under Federal law to a discharge of debt, but you can lose that entitlement if you fail to disclose, among other things, all sources of income.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.

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