Most sources of income must be included in the bankruptcy means test, including child support payments.
The Bankruptcy Means Test applies in Chapter 7 and Chapter 13 bankruptcy cases. However, the means test has different purposes in each chapter. The first section of the mean test calculates your average monthly household income.
Why Is Child Support Considered Income in My Bankruptcy Case?
It might seem unfair that the court would require you to include child support on the means test. Child support payments are for your children. The court intends you to use that money for your child’s financial needs.
The means test calculates “household income” and expenses. The median income to qualify for Chapter 7 bankruptcy is based on the number of people in your home. Therefore, you can count each of your dependent children when calculating expenses. It would not be fair to creditors for you to deduct expenses related to your children but set aside the money you receive for those same expenses.
How Do I Report Child Support Payments on the Bankruptcy Means Test?
Therefore, parents who receive child support must include the support payments as income in the means test. However, they can count that child as a member of their household to determine if they “pass” the means test.
If you want to calculate your average monthly income, you can do so here. In addition, our free Chapter 7 calculator below helps you estimate the cost and whether you may qualify for Chapter 7 bankruptcy.
On the other hand, parents who pay child support may deduct those payments from their average household income. Deducting child support payments from your means test could help you “pass” the means test to qualify for Chapter 7. If you file Chapter 13, reducing your disposable income through deductions lowers the amount you must pay to unsecured creditors through your Chapter 13 plan.
Determining Household Size for the Means Test When Parents Share Custody
Generally, parents who do not have physical custody of their children may not count the children as members of their household. If you receive child support payments and have sole custody of your child, your child is considered a member of your household.
However, joint custody can make calculating the number of household members for the means test difficult. In situations where parents share joint custody and the child lives with each parent on a somewhat equal basis, it is best to talk to an experienced Chapter 7 bankruptcy lawyer.
The Bankruptcy Code does not define how many days or months a person must live with you to be a member of your household. Therefore, attorneys must look to court orders for the answer. Again, it is best to speak with a lawyer in your area because different jurisdictions may have different rules.
What Is the Number of People in My Household Important for the Chapter 7 Means Test?
Chapter 7 bankruptcy is intended for individuals who cannot afford to pay their debts. Therefore, the courts use the means test to determine if you meet the income qualifications for a Chapter 7 bankruptcy discharge.
If your average annual income is below the median income for your state, it is presumed you qualify for a discharge under Chapter 7. The median income is based on a household of the same size as your household. The courts adjust the median income levels periodically based on the current data.
For example, if you file a Chapter 7 bankruptcy case on March 14, 2022, in California, the median income for a single-person household is $62,938. However, if you and your spouse have two children, the median income would be $106,530.
For each person added to your household, the median income increases. Therefore, the more people in your household, the more income you may earn and still qualify to file bankruptcy under Chapter 7.
Does Filing Bankruptcy Get Rid of Child Support Arrearage?
No, you cannot discharge past-due child support payments through bankruptcy. If you owe child support payments, you must list those payments on your bankruptcy schedules. The bankruptcy trustee questions every debt who files for bankruptcy relief if they owe domestic support obligations. The trustee must notify the holder of the domestic support claim and the applicable State Child Support Enforcement Agency.
If you file under Chapter 13, you can include past-due child support payments in your Chapter 13 plan. However, you must resume regular child support payments immediately. If you fall behind making your child support payments in the future, the court might dismiss your Chapter 13 case.
Get Help With Filing Bankruptcy to Get Rid of Debts
Calculating the Bankruptcy Means Test is one of the crucial steps you must complete to receive a bankruptcy discharge. If you qualify for Chapter 7, you could eliminate most unsecured debts in just four to six months. First, however, you must calculate the Chapter 7 Means Test correctly.
We encourage you to use our free Chapter 7 calculator and then contact our office to discuss how Ascend can help you with a Chapter 7 bankruptcy case. Most of our services are free of charge. It does not cost you anything to use our tools, research debt-relief options, or talk with a team member.
At Ascend, our priority is you. We want to help you discover a debt-free life. Our only goal is to help you find a way to get out of debt that is affordable for you. Sometimes, the best way to get rid of debts is by filing bankruptcy. In other cases, you may want to use a debt payoff planner, like the one we developed.
Call today or reach out to us online. Let’s take the first step together to get you out of debt and on the track to a brighter financial future.