Current Monthly Income

One of the reasons why the bankruptcy means test was created is to see if a debtor is qualified to file for a Chapter 7 bankruptcy. By passing the means test, debtors have the chance to have their available assets liquidated and be discharged of the rest of their debts to have a clean financial slate. But then again, if a debtor’s current monthly income is enough or more than enough for reorganization, then a debtor’s case will likely fall under Chapter 13.

Current Monthly Income

What is current monthly income?

The current monthly income or CMI is defined as the average monthly income that a debtor receives from all possible income sources taken from a period of six months or the look back period since the date that the bankruptcy case is filed. That is, if a debtor filed his/her case by January of this current year, the look back period will be from July to December of last year.

To calculate the CMI, debtor’s should all his/her applicable income during the look back period and divide the sum total by six to get the average monthly income. In the case of joint bankruptcy, both spouses’ income should be included for calculation in CMI. That is, if the pooled income totals a $18,000 divided by six months, the average which is $3,000 would be the CMI.

Types of income included in CMI

There are types of income that are included in the computation of CMI. On the other hand, there are some types of income like social security payments, payments to crimes of war or humanity victims, as well as other similar type of payments that are not included in CMI.

The income sources included in CMI are the following:

  • annuity payments;
  • cash bonuses;
  • child or spousal support;
  • dividends;
  • insurance for state disability;
  • insurance from worker’s compensation;
  • interest;
  • net income from business operation or profession;
  • pension;
  • real property income like rents;
  • retirement income;
  • royalties;
  • salary;
  • sales commissions;
  • taxable income;
  • tips;
  • unemployment compensation;
  • wages.

Take note: There are cases when a debtor has no regular income. This applies to people who earns by commission or has a business that earns with a similar nature. Bankruptcy courts in different states have several definitions of which income should be included in the CMI. The best way to know which of these incomes are included is to consult with a bankruptcy attorney who knows the income included for the CMI depending on the state. An expert bankruptcy attorney will also be able to interpret a CMI regardless of the debtor’s situation where a regular income is not present.

CMI and Chapter 7 eligibility

The CMI when compared with the bankruptcy means tests determines whether a debtor is qualified to file for a Chapter 7 bankruptcy or not. A CMI that is below the state’s median income will automatically qualify for Chapter 7 bankruptcy. Otherwise, the rest of the means test should be accomplished with regards to local as well as national standards of living expenses. Debtors should also take note that the median income varies from state to state.