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Does Social Security Count as Income in Bankruptcy?

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Does Social Security Count as Income in Bankruptcy?
In determining whether social security proceeds count as income in bankruptcy, the answer is both yes and no.  For purposes of the Means Test (also known as Form 22A - Statement of Current Monthly Income/Means Test in a Chapter 7 and Form 22C - Current Monthly Income/Disposable Income in a Chapter 13), social security income does not need to be listed and will not count as income.  The means test is what determines whether a person is eligible to file a Chapter 7 bankruptcy based on their income.  If a person is below median for their household size, they can file a Chapter 7 bankruptcy.  If they are over, they may have to file a Chapter 13 bankruptcy.  Therefore, social security income not counting as income for purposes of the means test is extremely helpful for people who may be close to being over median and may help them file a Chapter 7 bankruptcy.
Even though social security income does not get included in the means test, it is still necessary to include social security income in Schedule I, which states the current income for debtors, along with any other forms of income the debtor may have.  When taking into account a debtor's income and expenses in Schedules I and J (expenses), if there is money left over every month not allocated to the debtor's monthly expenses, the Trustee may file a 707(b) objection.  This means the Trustee believes there is abuse occurring.  The United States Code, Title 11, Section 707(b)(1) states, "after notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee ... or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts, or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter." 
The trustee may file a motion to dismiss when the exclusion of social security income in the means test allows for a person to qualify for a Chapter 7 bankruptcy, but a positive excess in Schedule I would indicate abuse because the debtor has excess funds available to pay their unsecured creditors.  It is very important for debtors to list all their monthly expenses so Schedule I and J are accurate.  If you would like additional information, please contact a St. Louis or St. Charles bankruptcy attorney.

Category: Bankruptcy

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