Is Social Security Included in the Means Test for Chapter 7?

By Trudie Longren

Chapter 7 of the United States Bankruptcy Code permits you to discharge some of your consumer debt if you pass a means test. The purpose of Chapter 7 is to provide debtors with an opportunity for a fresh start by prohibiting creditors from collecting those debts. The means test assesses whether your income is insufficient to repay creditors after deducting living costs. If so, you may file for Chapter 7 bankruptcy. Social Security benefits are not included in the income calculation.

What is Chapter 7?

A Chapter 7 bankruptcy case offers relief from consumer debts, such as credit cards, medical bills and other unsecured loans. Relief is not available in Chapter 7 for federally guaranteed loans, student loans, past due taxes, and overdue child or spousal support payments. Following the discharge of debt through a Chapter 7 proceeding, creditors can no longer collect the debt. Most states recognize the debtor's right to retain certain property, such as a home or car, if the debtor reaffirms the existing mortgage or secured loan; all other non-exempt property is seized and sold by the trustee who pays the proceeds to creditors.

Means Test

Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which requires use of the means test as a way to determine eligibility for Chapter 7. The means test calculates your average monthly income for the past six months and compares it with the median monthly income for a household of similar size in your state. If your average monthly income is lower than the state median income, you are eligible to file for Chapter 7. If your monthly income exceeds the state median, you may still be eligible if, after deducting all allowable expenses, you have no disposable income to repay creditors. If you are not eligible for Chapter 7, you can file for Chapter 13 bankruptcy instead, which permits you to enter into a repayment plan that gives you up to five years to pay off your debts.

Get a free, confidential bankruptcy evaluation. Learn More

Income

The means test calculation includes the following types of income: wages, tips, bonuses, overtime pay, annuity payments, retirement and pension income, state disability insurance, child and spousal support, unemployment compensation, workers' compensation benefits and rental property income. The Bankruptcy Code specifically exempts from the means test income calculation benefits authorized by the Social Security Act, including Social Security retirement benefits, Social Security Disability Insurance and Supplemental Security Income. Therefore, you do not include your Social Security payments as income in the means test calculation.

Additional Considerations

Even though Social Security benefits do not form the basis for income calculations for the means test, you are required to disclose those benefits to the bankruptcy court. Among the financial information that must be provided in the bankruptcy petition is the source, frequency and amount of income. Social Security payments must be reported with that financial information; if you are married, the Social Security payments of your spouse must also be disclosed.

Get a free, confidential bankruptcy evaluation. Learn More
The Discharge of Indebtedness in Chapter 7

References

Related articles

Things to Know Before Filing for Bankruptcy in Hawaii

Bankruptcy can be a good option for those who feel overwhelmed by debt, though bankruptcy isn’t for every situation. For example, you must be a resident of Hawaii for 90 days before filing. In addition, your options in the state are different than those in other states since Hawaii has its own wage and exemption standards. If you decide to file a bankruptcy case, an attorney or online legal services provider can help.

Is There a Law in Washington State About No Overtime for Child Support?

When the court determines the income a parent receives for child support purposes, it typically must consider all possible sources of income, including overtime pay. However, under certain circumstances, it might exclude overtime from the standard child support calculation.

What Does It Mean if a Bankruptcy Is Lifted?

When an individual debtor files for Chapter 7 or Chapter 13 bankruptcy, creditors must immediately stop their collection efforts. Creditors sometimes may attempt to get around this ban by petitioning the bankruptcy court to "lift" the stay. A bankruptcy lift allows the creditor to continue collection activity, such as garnishing wages or foreclosing on a home, while the bankruptcy case is in progress.

Related articles

What Happens to Judgments in Bankruptcy?

If a creditor wins a money judgment against you, that judgment may or may not be subject to discharge in bankruptcy. ...

Provisions of Chapter 13 of the Federal Bankruptcy Laws

Chapter 13 bankruptcy is a form of personal bankruptcy that allows an individual’s debt to be adjusted if he has a ...

Rules for Declaring Bankruptcy in Kansas

When a Kansas resident wants a clean financial slate, he may file for bankruptcy protection under Chapter 7 or Chapter ...

Disposable Income Used in Chapter 13

Consumers have two options in bankruptcy court: Chapter 7 and Chapter 13. Chapter 7 liquidates assets and discharges ...

Browse by category
Ready to Begin? GET STARTED