Calculating your Monthly Income for Bankruptcy

In order to have your debts wiped out in Chapter 7 or Chapter 13 bankruptcy case, you must disclose all your monthly income. This is performed using the “means test” which can qualify you for a discharge in Chapter 7 bankruptcy or a discharge in Chapter 13 bankruptcy. In certain situations, showing your monthly income for bankruptcy is as simple as showing your W-2 forms, and still in other situations, it’s not so easy.

What is Included in Your Monthly Income

How individuals are paid income varies widely and so how your current monthly income is calculated for purposes of filing bankruptcy can sometimes be confusing. For purposes of filling out the means test, your current monthly income is the average of all sources of income over the six months prior to your bankruptcy filing. You essentially add up all income you have received over those six months and divide by six. For W-2 wages your monthly income is calculated using your gross pay.

Payments included as part of your Monthly Income

Your monthly income is derived from the typical income sources including, wages, salary, tips, commissions, net business income, interest, dividends, and royalties. Additionally, pension and retirement income, money received for child support and alimony, unemployment pay, workers compensation insurance payouts, state disability, and annuity payments are all also considered part of your income whether they are taxed or not. One way to answer what income is and what it is not is to include any money that has received over the previous six months that wasn’t received under Social Security.

The Timing of your Bankruptcy Case is Important

If you don’t receive a regular paycheck the timing of when you file bankruptcy becomes quite important. For example, if you are a salesperson and recently received a large commission payment, it may be more prudent to delay filing bankruptcy. Alternatively, if you are a business owner who experiences seasonal shifts in business this could also mean filing at a period where business is light.

Because Bankruptcy Courts employ different measures to calculate your current monthly income, hiring a bankruptcy attorney can not only help ensure that your bankruptcy case is confirmed, but also help you time your bankruptcy filing to ensure you receive the maximum amount of debt discharged. Contact your Sacramento bankruptcy lawyer to discuss your monthly income and how it will affect your means test.