When you file for Chapter 7 bankruptcy, you must fill out a long form referred to as the “means test” (Form 22A). One of the important calculations on the means test is your “current monthly income.” This figure plays a large role in whether you qualify for Chapter 7 bankruptcy, or not. (To learn more about the means test, see The Means Test & Other Chapter 7 Eligibility Issues.)
Here’s a primer on what is included in current monthly income and how to calculate it for the bankruptcy means test form.
The Definition of Current Monthly Income
For purposes of the means test, you current monthly income (CMI) is the average monthly income you received from all sources that was derived during the six-month period that ends on the last day of the month preceding your filing date.
Here are some more details:
The look back period. The CMI definition can be confusing since it looks at your income in the previous six-months (often referred to as the “look back” period), not, as the term would suggest, the amount of money that you currently earn.
- Example. Ted files for bankruptcy on July 2, 2011. His current monthly income is the average income he received per month from the period starting January 1, 2011 through June 30, 2011.
“Derived.” The word “derived” in this definition might be important if you received money during the six-month period that was derived (or earned) during a different period.
Includes regular payments from another for household expenses. This amount also includes any payments you receive on a regular basis for your or your dependents’ household expenses. For example, if your children’s father gives you $500 per month to pay for your kids’ food and clothing, you must include this in your CMI.
In joint cases, include both spouses’ income. If you are filing a joint case, CMI includes income for both spouses.
What Income Is Included in CMI
You must include all of your income, whether it is taxed or not, except the following:
- payments you received under the Social Security Act (including Social Security Retirement, SSI, SSDI, and TANF)
- payments to victims of war crimes or crimes against humanity, and
- payments to victims of international or domestic terrorism.
Here are some examples of income that should be included (this list is not exhaustive):
- wages, salary, tips, bonuses, overtime, and commissions
- net income from the operation of a business, profession, or farm (the amount you report as taxable income, after subtracting reasonable and necessary business expenses on IRS Schedule C)
- interest, dividends, and royalties
- net income from rents and other real property income
- pension and retirement income
- regular contributions to the household expenses of the debtor or the debtor’s dependents, including child or spousal support
- regular contributions by the debtor’s spouse if he or she isn’t part of the household
- unemployment compensation
- workers’ compensation insurance
- state disability insurance, and
- annuity payments.
Calculating Your Current Monthly Income
To get your current monthly income (CMI), add up the total income you received from all sources during the six-month look back period, and then divide by six to come up with your average monthly income.
When Your Income Is Not Regular
If you are employed and get a regular paycheck in the same amount each pay period, it will probably be easy to calculate your CMI.
But calculating your CMI isn’t always straightforward. Here are some examples.
- You are a real estate agent and just received a huge commission for a sale you worked on for three years. Do you have to count the entire commission as part of your CMI? Or can you prorate it over the three years you worked to receive it. Here’s where the word “derived” could be important. You may be able to argue that the money was not derived during the six-month period, but instead was derived over three years.
- You own an ice cream shop. You file for bankruptcy right after the summer, when business is traditionally much brisker than other times of the year.
- You received a one-time bonus two months before you filed for bankruptcy.
Courts employ various interpretations of what is included in the definition of CMI. If your income situation is less than regular, it may be advantageous to consult with a local bankruptcy attorney who knows the views of your local bankruptcy trustee and court. A good bankruptcy attorney may also be able to advocate for an interpretation of CMI that is advantageous to your situation.