Current Monthly Income for the Bankruptcy Means Test

By , Attorney

Not everyone is qualified to have their debts wiped out (discharged) in a Chapter 7 bankruptcy case. If you're an individual filing a consumer bankruptcy (as opposed to a business bankruptcy), you must complete and pass the "means test."

The means test measures several things, including:

  • whether your income is less than your state's median income
  • whether you have disposable income available to pay back some or all of your debt in a Chapter 13 case, and
  • the length of time of the Chapter 13 repayment plan (three years if your income is under the median and five years if it's above).

Here we explain what is included in the current monthly income and the calculations necessary for the bankruptcy means test form.

What Is the Means Test?

You'll come across the means test when you complete the forms you file to start a Chapter 7 case. The test consists of three forms, but you might not need to complete all of them.

On the first form—Chapter 7 Statement of Your Current Monthly Income (Form 122A-1)—you'll list all gross income received during the six full months before your bankruptcy filing date. You'll pass the test as long as your income doesn't exceed the state median income. It won't be necessary to fill out additional forms. (You'll divide your gross figure by six and multiply it by twelve before comparing it to the state's annual median income figure.)

If your income is higher than your state's median income, you'll get a second chance to pass the means test by completing the second form—Chapter 7 Means Test Calculation (Form 122A-2). You'll deduct allowed expenses from your income, such as housing costs, utilities, child care, taxes, insurance, and tithing. The calculations will determine whether you have any disposable income available to pay debts. If you don't have much leftover, you'll pass the test and will qualify to receive a Chapter 7 discharge. Otherwise, you'll likely have to consider filing for Chapter 13 bankruptcy.

Some people can avoid taking the means test altogether. For instance, disabled veterans, servicemembers engaged in active duty during particular periods, and individuals with primarily business debt (instead of consumer debt) are exempt from the means test requirement. You'll report your exempt status on the third form.

(For additional information, see The Bankruptcy Means Test.)

What's Considered Your Current Monthly Income?

For the means test purposes, your current monthly income (CMI) is the average monthly income you receive from all sources during the full six-month period preceding your filing date. For instance, if you planned to file your bankruptcy paperwork on November 20, 2020, you'd include all income received starting May 1, 2020, and continuing through October 31, 2020.

To get your 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. If the income is from wages, use the gross amount. If you don't pass the first portion of the means test, you'll be able to deduct your income tax—and other expenses—when completing the second form. (Remember that you'll be comparing this figure to your state's yearly median income, so you'll multiply the CMI by twelve first.)

What Income Should You Include in Your Current Monthly Income?

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 you should include (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 (unless you are legally separated)
  • unemployment compensation
  • workers' compensation insurance
  • state disability insurance, and
  • annuity payments.

When Your Income Isn't 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? You might be able to argue that the money was not earned during the six-month period but rather 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 your local bankruptcy trustee and court's views. A good bankruptcy attorney may also be able to advocate for an interpretation of CMI that is advantageous to your situation.

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