In personal bankruptcy, what is considered income?

When you file for bankruptcy, some of your debts may be discharged and others may be reorganized or modified, depending on the kind of bankruptcy you opt to file for. When contemplating either kind of bankruptcy, you should have a firm understanding of basic bankruptcy information and how the processes will impact your income, assets and debt.

When you file for bankruptcy, you will need to provide an accounting of your income. Your income will then be reviewed in order to determine how much you will be allowed to keep for reasonable living expenses and how much, if any, will be given to your creditors. At the heart of this review is the question, "What is considered income for the purposes of bankruptcy?"

Americans generally think of income as an employment-related paycheck. However, for the purposes of bankruptcy, income as a concept is a little more complex. For example, if you receive any kind of benefits from the government, you will need to declare them as income. Veterans' benefits, Social Security disability benefits, workers' compensation benefits and any welfare benefits must be declared as income. This does not mean that these benefits will necessarily be affected at all by your bankruptcy, as they tend to be protected in unique ways. However, they will need to be reported so that the court can determine how they factor into your reasonable living expenses.

In addition, you will generally need to report any pension benefits that you are currently receiving and retirement benefits that you are currently receiving. If you live with a partner, that individual's income may or may not be taken into account. In addition, both spousal and child support may need to be reported for the purposes of determining your reasonable living expenses.

An experienced bankruptcy attorney can help you navigate what is considered income for the purposes of bankruptcy and how each source of income may be affected by filing for bankruptcy protections. When in doubt about what to report as income, please consult your attorney and err on the side of reporting versus withholding.

Source: Beat my Debt, "What is counted as income if I go bankrupt?" James Falla, July 15, 2013