Can unemployment payments be used in calculating the means income?

Yes for Chapter 7 filings. The first step of the Means Test is to compute the average monthly income for debtor and live-in spouse for the past six full months before a bankruptcy filing and see if that is greater than the median income for the debtor’s household size. Such income is defined as excluding benefits received under the Social Security Act. Unemployment benefits are received under the Act but are not direct Social Security benefits, so the official form designers “punted” and allowed the debtor or counsel to disclose it as Social Security or non-Social Security income.

A recent Massachusetts bankruptcy decision ruled that unemployment benefits are Social Security benefits and therefore not countable income. In re Munger. 370 B.R. 21 (Bankr D MA 2007) (Rosenthal, J). This decision has widespread implications, since foster care, day care, and adoption subsidies as well as most forms of welfare (but not Food Stamps) are similar benefits under the Social Security Act (although most recipients might not have to worry about having above-median income).
Unemployment compensation is given special treatment. Because the federal government provides funding for state unemployment compensation under the Social Security Act, there may be a dispute about whether unemployment compensation is a “benefit received under the Social Security Act.” The forms take no position on the merits of this argument, but give debtors the option of reporting unemployment compensation separately from the CMI calculation. This separate reporting allows parties in interest to determine the materiality of an exclusion of unemployment compensation and to challenge it. In plain English this means, report it separately. It may not affect the result of the test. If it does, it will be a “material” issue that the debtor

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