Kentucky Bankruptcy Law

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Disability Income and the Means Test

To file a Chapter 7 one must qualify under the means test. Well, that is the layman’s explanation. What is actually going on is that one must go through a formula of looking at their currently monthly income as derived from the last six months preceding the month in which the bankruptcy is filed to see if there is a presumption that filing Chapter 7 is an abuse of the bankruptcy system. Okay, let’s stick with the layman’s version.

Anyway, what matters to those of you who receive disability benefits is whether or not they have to be included in the calculation of your current monthly income in the means test. This matters because it could knock some folks out of the Chapter 7 range. Current monthly income is actually a term in statute and can be found at 11 U.S.C. Sect. 101(10A). This basically says it is all money coming in except for a couple of narrow exceptions. The exception that is most commonly found are funds one receives as a result of the Social Security Act.

The Social Security Act can be found in Title 42 of the United States Code. It covers a number of things, including Social Security retirement funds and Social Security disability. Some jurisdictions also recognize unemployment benefits as falling under this exception, while others do not.

Since Social Security Disability is excluded as “current monthly income” for purposes of the means test, one would logically assume that all disability benefits are excluded. Wrong! For example, disability income that military veterans receive from the Veteran’s Administration arise out of Title 38 of the United States Code rather than Title 42, so they are included as income for the purposes of completing the means test. It just is. Please do not ask me to explain it – just accept it.

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November 25, 2014 - Posted by | Bankruptcy, Chapter 7, Means test | , , , , , , , ,

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