Does a Retired Teacher’s Pension Count in California Chapter 7 Means Test?

Question from JT, Does a Retired Teacher’s Pension Count in California Chapter 7 Means Test?

Answer from AI:

How the Means Test Works in a Chapter 7 Case

The Means Test is used to decide whether a debtor can file under Chapter 7 (liquidation) or must go to Chapter 13 (repayment). It looks at monthly gross income and compares it to the median income for a household of the same size in the state. If the debtor’s income is below the median, they automatically qualify for Chapter 7. If it is above, the test then subtracts allowed expenses to see whether the debtor has enough disposable income to repay a portion of the debts.

Pension Income and the Definition of “Income”

Under the federal Bankruptcy Code, pension benefits from a qualified retirement plan are excluded from the definition of income for the Means Test. The relevant provision is 11 U.S.C. § 101(10A), which states that “income” does not include:

• Benefits from a qualified retirement plan (e.g., a public‑employees pension or annuity)
• Social Security benefits and certain other government benefits

Because a retired public‑school teacher’s pension is a qualified retirement plan, it falls within this exclusion.

California’s Role

California determines exemptions—what property a debtor can keep—but the Means Test itself is governed by federal law. Therefore, even though California may have its own rules about protecting pension assets, the income calculation for the Means Test follows the federal definition. The California Bankruptcy Code does not add pension income back into the Means Test calculation.

Practical Implications for a Retired Teacher

When you complete the Means Test worksheet:

• Do not list the pension as part of your monthly gross income.
• Include any other sources of income you receive, such as part‑time wages, rental income, dividends, or interest.
• Report allowable expenses (housing, utilities, food, transportation, etc.) as required by the test.

If the pension is your only source of money, the Means Test will likely show a low or zero disposable income, making you eligible for Chapter 7 relief.

Points to Keep in Mind

• Other retirement benefits (e.g., a 401(k) distribution) may be treated differently; only qualified pension payments are excluded.
• Changes in the law or specific case facts can affect the analysis, so the general rule may not apply in every situation.
• Documentation: Be prepared to provide pension award letters or statements to the bankruptcy trustee to substantiate the exclusion.

When to Seek Professional Help

Bankruptcy law is complex, and the interaction of federal rules with state exemptions can be nuanced. While the general rule is that a qualified public‑teacher pension is not counted in the Means Test, you should:

• Consult a licensed bankruptcy attorney to verify that your pension qualifies as a “qualified retirement plan.”
• Have an attorney review all of your income sources and expenses to ensure the Means Test is completed accurately.

For further reading, see:

• 11 U.S.C. § 101(10A) – definition of income (U.S. Government Publishing Office)
• U.S. Courts – Chapter 7 Means Test Overview (official court website)

These resources provide the statutory language and practical guidance used by trustees and courts when evaluating a Chapter 7 filing.