What Is Considered Income For Bankruptcy?

If you are an individual filing under Chapter 7 or Chapter 13, you are required to list all income received during the past 6 months as part of the Means Test. The Bankruptcy Code has a very broad definition of “Current Monthly Income,” the term used to define income for the Means Test, and states that “Current Monthly Income” means “the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income…”. 11 U.S.C. § 101(10A)(A). This board definition of income can make a substantial difference as to whether an individual presumptively qualifies for a Chapter 7 bankruptcy and also how long a Chapter 13 repayment plan must last.

Is A Monthly Stiped To Take Care of a Resource Child or Foster Child Considered Current Monthly Income?

In Maryland, provided that certain requirements are met, a parent can become a Resource Parent or Foster/Adoptive Resource Parent. Resource Parents “have the responsibility of ensuring that foster youth placed in their care are treated with respect and dignity. Resource parents are expected to complete 27 hours of licensing training along with 10 hours of annual training to ensure that they remain competent and up-to-date with the most recent knowledge and skills available to care for children placed in their home.” http://dhs.maryland.gov/foster-care/resource-parents/

“A Foster/Adoptive Resource Parent is someone who is trained as both a Foster Parent and an Adoptive Parent. This specialized training enables a Foster Parent to adopt a child without having to go through more training to adopt. Although it is not mandated, many Foster Parents adopt the foster child in their home. Therefore, Foster/Adoptive Resource Parents provide a temporary and/or permanent home for children in need of assistance. Foster parenting is not always a lifetime commitment to a child, but it is a commitment to be meaningful during a child’s lifetime.” http://dhs.maryland.gov/local-offices/baltimore-city/adoption-foster-care-services/how-to-become-a-foster-parent/

Both Resource Parents and Foster / Adoptive Resource Parents are entitled to receive room and board payments for the child’s care and compensation for allowable expenses for the child. COMAR 07.02.25.0 and 07.02.25.07-1.

The income received for a Foster Parent or Resource Parent is not considered taxable income, and therefore it is not reported to the IRS as income. Stromme v. C.IR., 138 T.C. No. 9 (2012). However, the term “Current Monthly Income” in the Bankruptcy Code states that it includes all income, “whether such income is taxable income.” Therefore, for purposes of the Means Test, this income must be listed as income.

Is Social Security Income Considered Current Monthly Income?

Income received for Social Security is not considered Current Monthly Income under the Bankruptcy Code and these benefits are specifically excluded. However, the income must still be listed in Schedule I, but pursuant to Mort Ranta v. Gorman, et al., this can be deducted on Schedule J and is not used to calculate “Projected Disposable Income.” 721 F.3d 241 (4th Cir. 2013). Debtors can choose to use Social Security income to fund a Chapter 13 plan should they wish to, but are not required to do so.

Other Income Excluded From The Definition of Current Monthly Income

The Bankruptcy Code provides that certain other kinds of income are not to be included in the definition of Current Monthly Income for the Means Test. These are for “payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes” and “payments to victims of international terrorism or domestic terrorism, as those terms are defined in section 2331 of title 18, on account of their status as victims of such terrorism…”

The Honoring American Veterans in Extreme Need Act of 2019 (HAVEN Act)

On August 23, 2019, the HAVEN act became effective law and it adds an additional category of income that is excluded from the definition or Current Monthly Income: “any monthly compensation, pension, pay, annuity, or allowance paid under title 10, 37, or 38 in connection with a disability, combat-related injury or disability, or death of a member of the uniformed services, except that any retired pay excluded under this subclause shall include retired pay paid under chapter 61 of title 10 only to the extent that such retired pay exceeds the amount of retired pay to which the debtor would otherwise be entitled if retired under any provision of title 10 other than chapter 61 of that title.” This includes:

1. Disability and death benefits paid by the Veterans Administration under title 38 of the United States Code.
2. Monthly special compensation for catastrophic injuries or illnesses paid to service members under 37 U.S.C. § 439.
3. Any combat-related special compensation paid by the Department of Defense under 10 U.S.C. § 1413a.
4. Disability severance pay paid by the Department of Defense under 10 U.S.C. § 1212.
5. Any payment by the Department of Defense to a survivor in connection with the death of a member of the uniformed services. See 10 U.S.C. §§ 1431-1456.
6. Disability-related military retired pay paid by the Department of Defense to a service member retired under 10 U.S.C. §§ 1201-1202, 1204-1205, except that such payments are excluded from CMI only to the extent that they exceed the military retired pay that the service member would have received if the service member had retired without a disability.

The calculation of Current Monthly Income can have a substantial effect on a bankruptcy. These numbers are used to calculate whether or not an individual can presumptively file under Chapter 7, and are used to determine the duration of a Chapter 13 repayment plan.

If you have questions about bankruptcy and calculating the Means Test, please call Steiner Law Group at (410) 670-7060.