How Does Bankruptcy Affect Tax Refunds

Social Security Benefits And The Means Test In Chapter 7

If your income is low enough, you will automatically qualify for Chapter 7 bankruptcy. However, many clients have income slightly above the median income level, and must pass The Means Test in order to qualify for Chapter 7. This is not uncommon. The Means Test is simply a comparison of your income to your debts—some actual, and some allowances by the bankruptcy code.

Fortunately, The Means Test focuses on your most recent six months of income. This allows you to take advantage of some timing, if you have inconsistent income or unusual income which will not continue into the future. Your bankruptcy attorney will discuss this in more detail with you.

Types Of Income Included In The Means Test

The safe assumption is that every dollar hitting your accounts each month will be considered income for the purpose of The Means Test. This includes spousal support, support from family members, W-2 income, 1099 income, retirement income, and 401k early withdrawals.

Types Of Income NOT Included In The Means Test

While Veterans’ benefits DO count as income for The Means Test, Social Security benefits DO NOT. This means you may pass The Means Test if a large part of your income each month is Social Security benefits.

Current Monthly Income

Current Monthly Income is different from The Means Test calculation. Once you pass The Means Test, you still have to complete a budget reflective of your current income for the month. This is different from your income from the past six months. Additionally, you get to compare your actual expenses to your actual income for the month, where The Means Test does not always allow you to take your actual expenses. Even though your Social Security benefits will be counted in your Current Monthly Income, if you passed The Means Test, you should have nothing to worry about when it comes to Current Monthly Income calculations.

Further Reading

Want to learn more? Read one of over 100 articles on our Bankruptcy Blog Articles.

Speak With A Charlotte Bankruptcy Lawyer Today

The easiest way to get a better idea of whether you qualify for Chapter 7 is to speak with a Charlotte bankruptcy attorney today. You can call us at 704.749.7747 or click for a FREE CASE EVALUATION. After a brief discussion with an attorney, we can usually give you a good idea as to whether you will qualify for Chapter 7. We can also help confirm if a Chapter 7 or a Chapter 13 is the best choice for you.