Gambling winnings in bankruptcy carry real consequences. To file a Chapter 7 bankruptcy case, you must first establish your eligibility under federal bankruptcy law. Whether you qualify to file a Chapter 7 bankruptcy case primarily depends on the amount of your income. Federal bankruptcy law uses a tool known as the means test to review your income over six months prior to filing your case. This includes filing either a chapter 13 bankruptcy or a chapter 7. This raises a question: What is income? If you win money from the lottery or go to Las Vegas and bet on the Thunder and win, are these gambling winnings in bankruptcy considered income for means test purposes? What about if you inherit money from a relative in probate, is this income for the means test?
The Means Test
Most individuals filing for bankruptcy in Oklahoma must complete specific bankruptcy forms and meet certain requirements to file bankruptcy in and among those is to list income and expenses. The process of counting your income is known as the means test. You use these forms to state your monthly income and, in effect, complete the means test.
The following forms are designed for use in Chapter 7 cases, collectively called the “122A Forms”:
- Official Form 122A-1 (Chapter 7 Statement of Your Current Monthly Income)
- Official Form 122A-1Supp (Statement of Exemption from Presumption of Abuse Under § 707(b)(2))
- Official Form 122A-2 (Chapter 7 Means Test Calculation)
The following forms are designed for use in Chapter 13 cases:
- Official Form 122C-1 (Statement of Your Current Monthly Income and Calculation of Commitment Period)
- Official Form 122C-2 (Chapter 13 Calculation of Your Disposable Income)
The first part of the means test compares a filer’s gross household income to the median household income for a family of the same size in their state. The U.S. Census Bureau determines median household income and regularly updates these threshold amounts. The means test evaluates your current monthly income (CMI) over six months. If your income is lower than this amount, you qualify to file a Chapter 7 bankruptcy case. If your income is higher than this amount, you are not done with the means test; bankruptcy is still a very viable option. Now, you must deduct your living expenses and again determine if your income is low enough to qualify. If you don’t qualify after subtracting your expenses from your income, you are still eligible to file bankruptcy, but you must file a Chapter 13 case.
How Does The Means Test Define Income?
What is “income” under the means test? When counting your income for means test purposes, there are few exceptions to the rule that everything that you receive of value is income. Under federal law, CMI is the average monthly income received from all sources during the entire six-month period preceding the filing date of your bankruptcy case.
Under Title 11, the Bankruptcy Code, the term “current monthly income” specifically means the average monthly income from all sources that the debtor receives without regard to whether such income is taxable income, derived during the six months ending on the last day of the calendar month immediately preceding the date of the case filing if the debtor files the schedule of current income. Income includes any amount paid by any entity other than the debtor regularly for the debtor’s household expenses or the debtor’s dependents. Because the definition of CMI counts “income” “from all sources and as any amount paid by any entity, CMI includes gambling winnings. When calculating income to determine eligibility to file for bankruptcy, you must count any gambling winnings as income. In the real world, Social Security benefits are the only source of income that is ever excluded from the means test regularly.
Income for means test purposes excludes only the following types of income:
- Benefits received under the Social Security Act,
- 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 as defined by applicable federal law or domestic terrorism as defined by applicable federal law based on their status as victims of terrorism.
Tulsa Oklahoma Bankruptcy Lawyers
Filing bankruptcy might seem like a daunting task. Our Tulsa bankruptcy attorneys file bankruptcy in all Oklahoma Counties. Our legal team can help alleviate any stress involved in the filing process. With our assistance, we will assess your situation and suggest your options so that you can make effective and informed, stress-free decisions in your bankruptcy matter. The attorneys at Kania Law Office are experienced and knowledgeable in business and consumer bankruptcy cases. You can be successful filing and getting back to financial freedom from creditors harassments. For more information about how our Tulsa bankruptcy lawyers can help you call (918) 743-2233 or contact us online.