Is IRA withdrawal income for Means Test in California?

[msm859]

Will be filing in CA and my attorney wants to delay because last May I sold some mutual funds in an IRA to use to settle my second on the house. He says that is income which makes me fail the means test. I know the 8th circuit has said no, but does anyone have any experience in California?

[gman]

Does "last May" mean May 2010 or May 2009? I am assuming you mean May 2010 because if it was 2009 it is completely a non-issue.

Assuming it is May 2010.....

1. The good news right away is that your Schedule I income should NOT include the IRA withdrawals. The Supreme Court settled this in the Lenning case in June 2010.

2. Personally, I don't know if your specific Bankruptcy District or if your Circuit Court of Appeals has weighed in on IRA withdrawals on the Means Test.

3. In a worst case, assuming that they are included, and assuming that if they were excluded your last 6 months income would be (a) under the state median or (b) your DMI would be very negative - you can still file even though you fail the Means Test. A good lawyer will argue that the Means Test is interesting but irrelevant in your specific situation. Remember, passing or failing the Means Test only sets the "presumption of abuse" in the eyes of the Court. Passing the Means Test does not guarantee you get a Chapter 7. On the flip side, failing the Means Test does not mean you cannot get a Chapter 7. FIND A LAWYER WHO HAS EXPERIENCE WITH A DEBTOR WHO FAILED THE MEANS TEST BUT RECEIVED A DISCHARGE ANYWAY.