The definition of income seems simple enough. How much money do you make? But, like most things in bankruptcy law, it is a bit more confusing than that.
First of all, there are two ways of looking at income, gross income and net income. Gross income is the money you earn before taxes, and net income is your earnings after they are removed. Both are important in bankruptcy. Your gross income will be considered in the “means test” (which is discussed in greater detail elsewhere on this blog and website) while your net income will be used in Schedules I & J in the bankruptcy petition.
While gross and net income will generally be proportional in most cases, sometimes they can differ between filers. For instance, net income can be lower if your tax withholdings are particularly high, or if you have large deductions for insurance or retirement accounts. Either way, your bankruptcy attorney will need to discuss both types of income with you in order to determine your eligibility to file bankruptcy.
The definition of income can also be confusing in bankruptcy because the court will consider certain payments to be “income” that go beyond your paycheck. For instance, any type of government benefits will be considered income. This includes Social Security, unemployment compensation, VA benefits, and even food stamps. Adding further confusion, Social Security is considered income for purposes of Schedules I & J of the bankruptcy petition, but NOT for the means test!
The court will also consider other indirect payments as “income”. This includes household contributions towards expenses, side jobs, and even one-time windfalls like lottery winnings! A contribution towards expenses from a roommate is not the traditional ideal of “income”, but in bankruptcy, it is.
This can all be very overwhelming for an individual trying to determine on their own if they qualify. But, I would be happy to discuss your situation and help you determine your bankruptcy “income”. The primary purpose of this blog is let you know you should disclose ANY type of income you may have to your bankruptcy attorney, even if your don’t think of it as “income” per se. As an experienced bankruptcy attorney, I will be happy to walk you through this confusing subject in a free phone consultation. Call me at 412-414-9366.