The Means Test - Income

Posted by Terry Goddard | Aug 16, 2020 | 0 Comments

In my previous post I discussed the Means Test in general and its function.  In this post, I will begin to drill down on the various aspects of the Means Test beginning with Official Form 122A-1, Statement of your Current Monthly Income.  This post will presume that the preliminary determination of whether you are required to file the Means Test has already been completed and your debts are primarily consumer debts (i.e. you are not a business) and you are not exempted based on certain qualifying military service exemptions. 

Part 1 of Official Form 122A-1 is the core of the Means Test.  Before addressing income, the Means Test is interested in your current married/filing status.  There are essentially 3 options: (1) Not Married, in which case you only disclose your income; (2) Married and filing with your spouse, in which case both your income and your spouse's income are disclosed; or (3) Married and not filing with your spouse, in which case if you still live with your spouse both incomes are disclosed or if you and your spouse are legally separated or you are living separately, only your income is disclosed.  Keep in mind that if you select living separately or legally separated that your are making that assertion under oath and subject to perjury.  In addition, if living separately, you and your spouse are not living separately to avoid application of the Means Test requirements. 

When the Means Test discusses income, it is interested in the monthly average income from each source for the preceding 6 complete months before your file.  By way of example, if you file your case on August 15, the Means Test is interested in your monthly average income for March 1 – July 31.  This is the case regardless of what day in August you file.  If your case filing slips to September 1, the applicable income time frame is April 1 – August 31.  For salaried employees or for other people whose income does not change month to month this calculation is fairly simple.  A Debtor whose pay varies from pay period to pay period, the calculation can get complicated.  Again, the Means Test, at this stage, is only interested in gross income, income before all deductions. 

Part 1 of Official Form 122A-1 goes on to list the types of income that must be disclosed beginning with gross wages, salary, tips, bonuses, overtime, and commissions.  These items are usually found on your pay stubs.  The Means Test is also looking for any income you receive as alimony, child support, or other contributions to your household.  These other contributions may include money your older child or older parent pays to you to cover household expenses if they are living at your home. 

Unlike wages and support, money you earn from self-employment or rental properties is not a gross amount.  You are allowed to deduct ordinary and necessary operating expenses from the gross revenue you receive from these sources.  In the case of self-employment this would include business related expenses like rent, utilities, or supplies, and in the case of rental property might include your mortgage on that property, management fees, or other costs of maintaining the rental property.  Additional income sources that must be disclosed are interest payments received, dividends, royalties, non-Social Security Act unemployment compensation, pension payments, and retirement payments. 

Income sources you are not required to disclose are limited and tend to relate exclusively to Social Security Act income or combat-related disability or death payments.  More recently, money received under the CARES Act is not considered income for Means Test purposes.  Any other source of income not covered by the other categories on the Means Test and not excluded must also be disclosed. 

Under Part 2, the Means Test determines whether there is no presumption of abuse (you are permitted to file Chapter 7 Bankruptcy) or whether the presumption of abuse must be determined by Form 122A-2 (by deducting allowed expenses from your monthly income calculation).  Once you have determined your six month average monthly income from all sources, you take the total average and multiply it by 12 to get an annual number.  If your annual number is less than the median household income amount for  your household size in your state, then you are permitted to file Chapter 7.  If your annual number exceeds the annual median household income amount for your household size in your state, you must move on to Form 122A-2, which we will discuss in a later post. 

Finally, under Part 3, you are declaring under perjury that the information you have provided on Form 122A-1 is true and correct. 

In many cases, the calculation of income is the difference between filing Chapter 7 Bankruptcy or being required to file Chapter 13.  If you are considering filing for bankruptcy protection, hiring an experience attorney, like the attorneys at Skeen & Kauffman LLP, is extremely important.

About the Author

Terry Goddard

Terry L. Goddard Jr. heads the firm's consumer and small business bankruptcy group in both the Baltimore and Southern Maryland offices of Skeen & Kauffman LLP. Terry has over six years of bankruptcy experience assisting clients navigate the complex and intimidating filing for protection under Chapter 7 and Chapter 13 of the bankruptcy code. Terry has been a practicing attorney since 2002.


There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Skeen & Kauffman, L.L.P.

With 75 years of combined experience, the law firm of Skeen & Kauffman, L.L.P., is able to offer clients advocacy across a specific range of legal areas. Attorneys Skeen & Kauffman were employed at the same law firm more than 25 years ago, and formed Skeen & Kauffman, L.L.P., in Baltimore, Maryland, in 2004 to meet the needs of clients in a few select areas of law.

Contact Us Today!

The financial stress you are feeling will not get better with time. Take control of your finances again and call Skeen & Kauffman today to speak with an experienced bankruptcy attorney and to schedule your free initial consultation.