Schedule I (Income) of the Bankruptcy Petition: Avoid Pitfalls That Force Chapter 13 or Dismissal

Welcome to this in-depth guide on the bankruptcy petition. Because of my background as a bankruptcy attorney and law professor with a published textbook specializing in consumer bankruptcy law, I focus on the critical legal issues that go beyond just filling out the forms, as errors in Schedule I (Your Income) and Schedule J (Your Expenses) often lead to case dismissal or conversion to a Chapter 13 repayment plan.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Listen: The Professor’s Audio Briefing.

The Strategic Factor: Spousal Income and Timing

The Bankruptcy Trustee is required to examine household contributions due to the 2005 law change, making a spouse’s income a critical factor in the means test.

• Timing Advantage: If a spouse is unemployed or recently laid off, this may be the optimal time to file for Chapter 7.
• The Six-Month Income Rule: Chapter 7 eligibility uses the means test, which compares your income over the preceding six months to the average state income. If your income is above the state’s average, there’s a “presumption of abuse” under the Bankruptcy Code, and a second set of calculations is performed for the means test.
• Strategy: A recent drop in income, such as furloughs or layoffs, lowers this six-month average, potentially establishing Chapter 7 eligibility. Do not prematurely assume you don’t qualify for Chapter 7 bankruptcy.

Professor’s Note: The state average income is updated twice annually. Please make sure to have the latest figures, as the increase will help you qualify for Chapter 7. For a full list of the means test figures per state, read this prior post.

The Expense Error: Duplicating Expenses

The most common error is the duplication of expenses between Schedule I and Schedule J.

• Insurance Trap: If a health insurance premium is a payroll deduction that is listed on Schedule I, it CANNOT be listed again on Schedule J.
• Consequence: Duplicating expenses creates a financial discrepancy, risking case conversion to a Chapter 13 bankruptcy.

Domestic Support Obligations (DSO) Rules

DSOs are court-ordered child support and alimony. Including this expense is instrumental in lowering disposable income.

• Warning on Informal Agreements: If a debtor pays a non-court-ordered amount that exceeds the required statutory amount, the Bankruptcy Trustee can object to the surplus as an unnecessary expense.

Retirement Contributions: Know Your District

Voluntary Contributions to retirement accounts, such as a 401(k) or IRA, are not required and are handled differently across jurisdictions.

Real Life Scenarios: I have had cases where Trustees accepted contributions over $200 per paycheck. Curious if this was common, in researching for my textbook, I found some jurisdictions object to any significant amount.

• What to Do Next: You must know your district’s specific practice.
• Research Tool: Use pacer.gov (or an experienced attorney) to examine prior filings and observe how local attorneys handle voluntary contributions.

The Two-Pronged Income Test

The 2005 law, Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) requires the court to look at income twice: the Means Test and the Disposable Income Test.

• Schedule I vs. Means Test: While certain income sources like Social Security may be excluded from the Means Test calculation, they must be listed on Schedule I, where they affect disposable income.
• Disposable Income Trap: Even if Social Security is the sole source of income, there are minimal necessary expenses. For example, I had a client using all of her income at a casino, which would likely lead to an objection by the Trustee. If that expense is eliminated, then there’s a surplus when comparing income to expenses. This forces a conversion from Chapter 7 to Chapter 13.

Hidden Income: Household Contributions

All forms of income must be covered, including monthly contributions from family members who live in the house.

• Rule: These contributions must be included on Schedule I.
• The Surplus Problem (Example): If you receive $1,000 in rent without a corresponding increase in Schedule J expenses, you have a financial surplus problem. This applies even if a family member is renting a room in your home temporarily. The reason is that at the time of filing, the additional income existed.
• Crucial Warning: Do not lie to the Trustee. Undisclosed income can be confirmed by the Trustee through several different methods, especially in the era of “skip tracing.” Common methods are receiving mail at your home or bank deposits. This can result in dismissal of your case or even a referral to the U.S. Trustee’s Office because of bankruptcy fraud.

The Final Hurdle: Disposable Income Surplus

The difference between your income (Schedule I) and expenses (Schedule J) determines your disposable income.

Monthly Surplus	Risk Level & Trustee Action
Under $100	Generally low risk.
$125 and Above	High risk. Trustee will aggressively scrutinize all expenses to force Chapter 13 conversion.

The Danger of Financial Changes

Never make financial changes without consulting with a bankruptcy attorney.

• Example: Car Repossession: Giving up a financed car reduces your debt, but it also eliminates a large expense (e.g., a $500 car note) from Schedule J.
• Consequence: This creates an immediate $500 disposable income surplus, which will likely push you from Chapter 7 to Chapter 13.

Make sure to scroll to the bottom of this page and review the section on “How to File for Bankruptcy” for other sections of the bankruptcy petition.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.