What is the definition of “income” and what is the definition of “debt” in bankruptcy and divorce in Virginia?

What is the definition of “income” and what is the definition of “debt” in bankruptcy and divorce in Virginia?

Sometimes, the difference in the meaning of one word can determine the outcome of a case.  We often assume we know the meanings of some of the most frequently used words in bankruptcy and divorce, words like “income” and “debt”.  Yet, a closer examination of the legal definition of some of these frequently used words reveals how the legal definition may differ from the meaning of the word in common parlance.

Debt and income are important terms in bankruptcy and divorce in Virginia.  It is not surprising that we have more information on the meaning of income in divorce and on the meaning of debt in bankruptcy.  The legal definition of income in family law and divorce matters may affect child support, spousal support or maintenance, and the classification of marital property and separate property in equitable distribution in Virginia.  The legal definition of debt my affect the nature of a claim in bankruptcy and whether the claim represents an obligation owed or an interest in property.  In Virginia, it is not surprising that family law has stronger legal definitions of “income” and bankruptcy law has stronger legal definitions of “debt”, as divorce and family law are often concerned with establishing legal obligations based on income, while bankruptcy is concerned with the extinguishment of legal obligations based on debt.

We can first turn to Black’s Law Dictionary for common legal definitions of debt and income.  According to Black’s Law Dictionary, “debt” is “[a] fixed and certain obligation to pay money or some other valuable thing…, either in the present or future.”  Black’s Law Dictionary (Abridged 6th Ed., 1991).  The legal definition of “income” is “the return in money from one’s business, labor, or capital invested; gains, profits, salary, wages, etc.” Black’s Law Dictionary (Abridged 6th Ed., 1991).

The bankruptcy code leads us to a broad twofold definition of a “debt” in bankruptcy:  “The term “debt” means liability on a claim.”  11 U.S.C. § 101(12).  “The term “claim” means – (A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; and (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.”  11 U.S.C. § 101(5).   Thus, while a debt in common parlance usually means a present obligation on the part of the debtor and a present right to a certain amount of money on the part of the creditor, a debt in bankruptcy is not limited by time, conditions, or amount.  Of course, a debtor in bankruptcy may not discharge a debt that had not come into existence at the time of the filing of the bankruptcy case.

While the bankruptcy code does not define “income”, it does include a definition of “current monthly income” in 11 U.S.C. 101(10A) for means testing purposes under 11 U.S.C. 707(b)(2)(A)(i), as follows: “The term “current monthly income” – (A) means the average monthly income from all sources that the debtor receives (or in a joint case that the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income…”  Thus income in bankruptcy may include nontaxable receipts, such as gifts or inheritances, which would not be considered income in the ordinary sense.

“Income” enjoys a broad and comprehensive definition in Section 20-108.2(C) of the Code of Virginia, where “gross income” means all income from all sources, and shall include, but not be limited to, income from salaries, wages, commissions, royalties, bonuses, dividends, severance pay, pensions, interest, trust income, annuities, capital gains, social security benefits except as listed below [not Federal supplemental security income benefits], unemployment insurance benefits, disability insurance benefits, veterans’ benefits, spousal support, rental income, gifts, prizes or awards.”    Excluded from “gross income” under the Virginia child support law definition are the following:  “1.  Benefits from public assistance and social services programs as defined in §63.2-100; 2.  Federal supplemental security income benefits; 3.  Child support received; or 4.  Income received by the payor from secondary employment income not previously included in “gross income” where the payor obtained the income to discharge a child support arrearage…”  Va. Code § 20-108.2(C)(1) – (3).

While Section 20-107.3 of the Code of Virginia, Virginia’s equitable distribution statute, provides definitions of “separate debt” and “marital debt”, “debt” itself is not defined.  “Debtor” is defined in Virginia’s Uniform Commercial Code (Va. Code § 8.9A-102(a)(28)), but not “debt”.  While Virginia has a Division of Debt Collection (Va. Code § 2.2-518), and a Virginia Debt Collection Act (Va. Code § 2.2-4800, et seq.), the legal definition of a “debt” remains elusive.  Virginia does define a “Debt Collector” in Virginia Code § 6.2-2000 with reference to the Federal Fair Debt Collection Practices Act, which does include a definition of debt as follows: “(5) The term “debt” means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”  15 U.S.C. 1692(a)(5).   Finally,  the Virginia Taxes Title, Section 58.1-301 incorporates the definitions used in the Internal Revenue Service, which includes a definition of debt as follows:  “A debt is any amount owed to you, including stated principal, stated interest, fees, penalties, administrative costs, and fines. The amount of debt canceled may be all or only part of the total amount owed. However, for a lending transaction, you are required to report only the stated principal.”

You should consult with your Virginia bankruptcy and divorce attorney or Richmond Bankruptcy and Divorce Lawyer James H. Wilson, Jr., to discuss how the legal definitions of “debt” and “income” may affect your case.