It is no surprise that the amount of income you have effects your ability to file a bankruptcy case. However, there are many different types of income. Wages, tips, Social Security, and VA Disability income are just a few. Be aware that just because you may not have to file income taxes on all or a part of your income, that doesn’t mean you can leave it out when filing bankruptcy.
All Income Must Be Accounted For
When it comes to calculating your monthly budget for the Court, all forms of income must be counted. If it is income that is used by the household to pay the regular monthly bills, then it must be accounted for. Even if the income comes from Social Security or VA benefits (sources that may be exempt from income calculations when filing tax returns), then it must still be balanced into the budget. The Court will use your budget to calculate how much of a payment, if any, you could afford in a bankruptcy case.
The means test is different. The means test is used to determine whether a person qualifies for a Chapter 7 bankruptcy case or for what length of time they must remain in a Chapter 13 reorganization bankruptcy. In calculating your income under the means test, only Social Security income is exempt. It is also possible to be exempt from the means test if you are a disabled veteran.
Social Security Income Exemption
However, in order to qualify for this exemption, you must
- be a disabled veteran as defined by 38 U.S.C §371(1) and
- incurred most of your debts while on active duty or performing a homeland defense activity, as defined by 10 U.S.C §101(d)(1) and 32 U.S.C. §901(1).
38 U.S.C §374(1) defines a disabled veteran as:
- A veteran who is entitled to compensation for a disability rated at 30 percent or more, or
- A veteran whose discharge or release from active duty was for a disability incurred or aggravated in line of duty.
10 U.S.C. §101(d)(1) defines active duty as full-time duty in the active military service of the United States, and 32 U.S.C. §901(1) defines homeland defense as an activity undertaken for the military protection of the territory or domestic population of the United States, or of infrastructure or other assets of the United States determined by the Secretary of Defense as being critical to national security, from a threat or aggression against the United States.
So, simply being a disabled veteran isn’t enough to exempt the means test. You must meet both requirements. Keep in mind, that even if you are exempt from the means test, you still may not qualify to file a Chapter 7 case. If the Court believes you could afford to make payments on a Chapter 13 payment plan, then an attempt to file for Chapter 7 could be viewed as an act of bad faith and cause your case to be denied.
If you find yourself in a situation where your bills and expenses are starting to get overwhelming, consider making an appointment to speak with one of our experienced bankruptcy attorneys. At Bond & Botes we offer free initial consultations at all of our convenient locations in Alabama, Tennessee, and Mississippi. No matter what kind of debts you’re facing, we specialize in helping people find a way back to financial stability.
Nick Gajewski is an Associate Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Arts from the University of Alabama, and a Juris Doctorate from the University of Alabama School of Law. Nick joined the team of Bond & Botes bankruptcy lawyers back in 2014 and has been helping clients navigate financial issues since. Read his full bio here.