Is a Loan Considered New Income?
Transcript:
Hi, I'm Matt McArthur, bankruptcy attorney at Clear Counsel Law Group. A situation came about recently where an individual received a loan from a family member while their chapter seven bankruptcy was still pending. The question was whether or not this was income and if it would adversely affect their chapter seven bankruptcy case.
First let's think about reporting income in a chapter seven case. The main concern is making sure that an individual passes the means test, which is an analysis of the six months leading up to the filing of the bankruptcy case. What we're concerned about when we file your chapter seven case income-wise is how much income did you receive in the six months prior to filing bankruptcy and what your current monthly income is at the time that your case is filed.
With this being a loan that is after the filing of the bankruptcy case, it doesn't affect the analysis of what transpired in the six months leading up to the bankruptcy case. It's not going to have an adverse effect on the individual's bankruptcy case. The other part of this is that it's a loan. It's not truly income. This is something that's going to have to be paid back. It's a loan that is non-dischargeable since it was a loan that came into being after the case had been filed. This is money that has to be paid back. That's not a true measure of what an individual's income is.
Now with that being said, we can apply this principle more broadly across the whole spectrum of types of loans that a person may receive. It doesn't apply just to loans from family members and friends. It can apply to a new car loan, a new personal loan from a bank. An individual's ability to receive these loans and acquire these loans while a bankruptcy is pending will probably be limited. Any new loan after filing bankruptcy is not a part of the bankruptcy analysis when it comes to the discharge or what the income of the individual is in terms of passing the chapter seven means test.
If you are in the middle of a bankruptcy and you have obtained a new loan, it's probably not the direction you want to be going in because the whole point of filing for bankruptcy is to get out of debt. However, I understand that emergency situations do arise and these situations do happen from time to time. If you're at all worried about something like this, please come and see me. I'll give you the best legal advice possible moving forward and we'll give you all the information you need to move forward. Take care.
