Law & Legal & Attorney Bankruptcy & consumer credit

Sources of Income for Chapter 7 Bankruptcy

    • The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created a means test that all Chapter 7 bankruptcy applicants must undergo. The means test analyzes all of the debtor's income to determine if he is indeed unable to pay back the debts. In Chapter 7 bankruptcy, the debts are discharged, leaving the debtor with a clean slate in regards to debt.

      The means test is performed in the form of the chapter 7 Statement of Current Monthly Incomes and Means Test Calculation. This form takes all sources of income counted by the bankruptcy court and helps debtors and their attorneys determine the debtor's eligibility for Chapter 7 bankruptcy. The means test specifies that the income totals must reflect that received for the six-month period prior to the filing date.


    • Income from cashing out retirement funds, stock dividends/sales, and money received from property investments securities and bond interest is all considered income. It must be reported on lines six and seven of the means test statement. Interest income from other sources, as well as royalties, go on line six.


    • All hourly wages, salaries, tips and commissions earned are considered income and must be disclosed during the means tests. This includes the same income earned by your spouse. Even bonuses, prizes and wages earned as overtime pay must be disclosed. This income goes on line three of the means test statement.

    Business Income

    • Business income is treated differently. The gross sale or "receipts" are totaled and placed on line 4a. This includes all income earned from a business, any professional endeavors (consulting and freelance work included) and income from farming activities. This is totaled and placed in with the gross receipts. On the next line (4b), the expenses for the business are totaled and placed. The line indicates "ordinary and necessary business expenses," meaning the everyday expenses incurred in running the business, such as utilities, supplies, insurance, etc. Subtract 4b from 4a to get the business income number for line 4c. Real estate and rental property is calculated in the same manner, but on a different set of lines: lines 5a through 5c.

    Other Income

    • The means test also includes child support used for "household expenses," unemployment benefits not used as Social Security, gifts from others and any other funds coming into the household that are taxable. Lines 10a and 10b are reserved for income that has no other place on the form. Alimony, maintenance payments, Social Security and victims' compensation are excluded income sources.

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