Is Child Support Considered Income in Bankruptcy Means Test?

Is Child Support Considered Income in Bankruptcy Means Test?
Information in this article does not constitute legal advice, it is for informational purposes only, and may not constitute the most up-to-date information. Readers should contact their attorney for advice on any particular legal matter.

Did you know that most sources of income, including child support payments, need to be included in the bankruptcy means test? It's true! This test applies to both Chapter 7 and Chapter 13 bankruptcy cases, but it serves different purposes in each chapter.

For starters, the means test is used to calculate your average monthly household income in the first section. This step is crucial because it determines whether you qualify for Chapter 7 bankruptcy, which is also known as the "liquidation bankruptcy." If your income is below the state median, you may be eligible for Chapter 7 bankruptcy. However, if your income is above the state median, you'll have to move to the second section of the means test.

In the second section, your monthly expenses are deducted from your income to determine your disposable income. This amount is then used to calculate your payment plan in a Chapter 13 bankruptcy case. This type of bankruptcy is also known as the "reorganization bankruptcy" because it allows you to reorganize your debts and pay them off over time.

Overall, the bankruptcy means test is a crucial step in determining your eligibility for bankruptcy and the type of bankruptcy you'll be filing for. While it may seem daunting, it's important to remember that bankruptcy can provide a fresh start for those struggling with overwhelming debt.

Keep on reading, or jump ahead to the section that interests you most.

Table of Contents

Why Is Child Support Considered Income in My Bankruptcy Case?

When it comes to filing for Chapter 7 bankruptcy, you might be surprised to learn that child support payments must be included on the means test. While it may seem unfair, the court considers child support payments as part of your household income and intended for your child's financial needs.

The means test calculates your household income and expenses to determine if you qualify for Chapter 7 bankruptcy. The median income threshold varies depending on the number of people in your household, including your dependent children. While you can count your children as part of your household expenses, it wouldn't be fair to creditors if you deducted expenses related to your children while keeping the money you receive for those same expenses.

How Do I Report Child Support Payments on the Bankruptcy Means Test?

When parents receive child support, they must include the support payments as income in the means test. However, they can count the child as a member of their household to determine if they pass the means test. To calculate your average monthly income, you can use this tool. Additionally, our free Chapter 7 calculator can help you estimate the cost and determine whether you may qualify for Chapter 7 bankruptcy. Check it out below:

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 for Chapter 13, reducing your disposable income through deductions will lower the amount you must pay to unsecured creditors through your Chapter 13 plan.

So, if you are a parent who receives child support, remember to include it in your means test. However, if you are paying child support, you can deduct it from your average household income. These deductions may help you qualify for Chapter 7 bankruptcy or reduce your payments in a Chapter 13 plan. Use the resources and tools available to make informed decisions about your financial future.

Determining Household Size for the Means Test When Parents Share Custody

When it comes to calculating the number of household members for the means test, things can get a bit complicated for parents who share joint custody of their children. Generally, if you are the sole custodian of your child and receive child support payments, your child is considered a member of your household.

However, in cases where joint custody is involved and the child spends an equal amount of time with both parents, determining the number of household members can be tricky. The Bankruptcy Code does not provide a specific definition for how long a person must live with you to be considered a member of your household, so it's best to consult with a Chapter 7 bankruptcy lawyer who can provide guidance based on your specific circumstances and jurisdiction.

What Is the Number of People in My Household Important for the Chapter 7 Means Test?

If you're struggling to pay your debts, Chapter 7 bankruptcy may be an option for you. The court will use a means test to determine if you meet the income requirements for a Chapter 7 bankruptcy discharge.

If your average yearly income falls below the median income for your state, you're presumed to qualify for a discharge under Chapter 7. The median income is based on households of the same size as yours, and it's adjusted periodically using current data.

For instance, let's say you file for Chapter 7 bankruptcy in California on March 14, 2022. The median income for a single-person household is $62,938, according to the latest data from the Department of Justice. However, if you're married and have two children, the median income for your household would be $106,530.

The median income goes up as you add more people to your household. As a result, the more people you have in your household, the more income you can earn and still be eligible to file for Chapter 7 bankruptcy.

Does Filing Bankruptcy Get Rid of Child Support Arrearage?

Unfortunately, if you owe child support payments, filing for bankruptcy won't discharge those debts. You must include them in your bankruptcy schedules and answer questions from the bankruptcy trustee about any domestic support obligations you owe. The trustee is required to inform the holder of your domestic support claim and the relevant State Child Support Enforcement Agency about your bankruptcy filing.

However, if you file for Chapter 13 bankruptcy, there is a way to catch up on past-due child support payments. You can include them in your Chapter 13 plan, but you must continue making regular child support payments. If you miss future payments, your Chapter 13 case may be dismissed.

So, while bankruptcy won't erase your child support debt, Chapter 13 can help you catch up on past-due payments and get back on track with your financial obligations.

Get Help With Filing Bankruptcy to Get Rid of Debts

If you're considering filing for bankruptcy, one of the most important things you need to do is to calculate the Bankruptcy Means Test. This test determines whether you qualify for Chapter 7 bankruptcy, which can help you eliminate most of your unsecured debts in just a few months.

To make this process easier for you, we've created a free Chapter 7 calculator that you can use. After you've used our calculator, feel free to reach out to us to discuss how we can help you with your bankruptcy case. Our team is ready to answer any questions you may have.

We understand that everyone's situation is unique, which is why we offer a range of services to help you find the best solution for your needs. Whether that's filing for bankruptcy or using our debt payoff planner, we're here to help.

If you're ready to take the first step towards a brighter financial future, give us a call or reach out to us online.

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