Must I include severance pay that I received when I got laid off 2 months ago in my means test calculation for ch 7?

Asked about 4 years ago - Riverside, CA

It was a sizeable amount and if it must be included I may have to wait it out.

Attorney answers (3)

  1. Tony E Carballo

    Contributor Level 13

    Answered . Yes, you might have to wait it out. If you must file now then you might have to go 13 and later convert to 7 if that would be of greatest benefit for your situation. Going 13 if you can't wait is safer than going 7 if the presumption of abuse arises and you need to convince the trustee that no abuse arises since the severance pay is a one time payment that needs to last you until you get a job. One problem might also be that you might not be able to exempt the severance pay assuming you still have it. If spent, then you must explain how and why the expenditure was necessary and reasonable in your situation. You really need to consult with an attorney experienced in bankruptcy who knows how these matters are handled in your area.

  2. Timothy William Combs

    Contributor Level 13

    Answered . The answers have been well stated by my colleagues. I might add that if you have the time to wait it out, that may be your best option. In chapter 7, time is usually your friend. The means test looks at the past 6 months income and is very mechanical. If allowing a bit of time to pass will put your income under the state median for your household size (and no other adverse effects will occur in the meanwhile, ie. wage garnishments, etc.), it may be beneficial to wait and be patient. Otherwise, you will show "phantom income" that you are not currently making.

    Good luck to you.

    Disclaimer: This Post is general in nature and does not create an attorney-client relationship. Do not act, fail to act or otherwise rely on this post. In all cases, seek independant legal counsel from a licensed attorney in your area.

  3. Lawrence W. Lobb

    Contributor Level 11

    Answered . Yes, the means test income calculation includes any severance pay received during the six month period prior to the date of the bankruptcy filing. These funds may result in an inflated and inaccurate income calculation. While the presumption of ability to repay can be rebutted with an explanation of current financial circumstances and income, the Trustee will likely require detailed financial records regarding how the severance money was spent.

    Disclaimer: The above response is not intended to create, nor does it create, either an attorney-client relationship or an ongoing duty to respond to questions. It is intended to be solely the educated opinion of the author and should not be relied upon as legal advice. The response given is based upon the limited facts provided by the inquiring person and additional or differing facts might change the response. Attorney is licensed to practice law only in the states of Illinois and Michigan. Responses are answers to general legal questions and the inquiring party should consult a local attorney for specific answers and advice.

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