Congress created the “means test” to determine if you qualify to file for Chapter 7 bankruptcy. Whether you qualify for Chapter 7 depends largely on what the means test calculates as your “current monthly income.” Read on to learn more about how current monthly income is calculated and what it includes.
(You can get more means testing information here.)
What Is Current Monthly Income (CMI)?
For means test purposes, CMI is defined as the average monthly income received from all sources derived during the six-month period ending on the last day of the month before your bankruptcy filing date. This is also known as the “look back period.”
To calculate your CMI, you add all applicable income received during the look back period and divide the total by six to arrive at your average monthly income. In a joint bankruptcy, you must include all income received by both you and your spouse.
Example. If you filed for Chapter 7 on January 19, 2012, the applicable CMI look back period is the six-month period from July 1, 2011 to December 31, 2011. If you received a total of $24,000 from all income sources during the look back period, your CMI would be $4,000 ($24,000 divided by 6).
How Does CMI Affect Your Eligibility for Chapter 7?
The means test compares your annualized CMI against your state’s median income for a household of the same size. If your CMI is below the state median, you automatically qualify to file for Chapter 7 bankruptcy. If your CMI is greater than the state median, you must complete the rest of the means test and take into account national and local living expense standards to determine if you are eligible to file for Chapter 7. (To find your state's median income, visit our Bankruptcy in Your State area and click on your state.)
Example. Sally has a CMI of $3,000. This means her annualized CMI is $36,000 ($3,000 multiplied by 12). If Sally is single and her state’s median income for a single-person household is $40,000 then she automatically passes the means test and qualifies for Chapter 7 bankruptcy.
What Income Does CMI Include?
The CMI calculation includes income you receive from almost all sources. Below, we discuss the most common sources of income you must take into account when calculating your CMI.
Gross wages, salaries, tips, bonuses, overtime, and commissions. Essentially all income you receive from employment is part of your CMI. Keep in mind that you must use your gross income (before tax and other deductions) when calculating CMI.
Net income from business, profession, or farm. If you are self-employed or own a business or farm, your CMI includes your net income (income after deducting business expenses) received from these sources.
Net rental or other real property income. If you receive rents or have other income from real property, your net income after expenses is included in your CMI calculation.
Income from interest, dividends, and royalties. Any interest, dividend, or royalty income is part of CMI.
Pension and retirement income. If you have a pension or receive retirement benefits, you must add them to your CMI calculation.
Regular contributions or support received from another person for household expenses. This includes income from alimony or child support. In addition, even if your daughter is giving you $300 each month to help out, you must include that contribution in your CMI. However, you don’t have to include any contributions from your spouse if you are filing a joint bankruptcy with him or her.
Unemployment benefits. If you receive unemployment compensation, it must be included in your CMI. But unemployment benefits received under the Social Security Act are not part of your CMI calculation.
Income from all other sources. Any income you receive from other sources such as state disability payments or annuities.
What Income Is Excluded from the CMI Calculation?
When calculating your CMI, you don’t have to include income received from the following sources:
Benefits or payments received under the Social Security Act. If you receive Social Security income or other benefits such as Social Security disability payments, you are not required to include them in your CMI calculation.
Payments received because you were a victim of domestic or international terrorism, war crime, or crime against humanity. Payments received as a result of being a victim of these crimes is not part of your CMI.
What If Your CMI Does Not Accurately Reflect Your Actual Income?
Unfortunately, the means test only uses the six-month look back period to calculate your CMI. As a result, your CMI may not accurately represent your actual income if you have irregular or seasonal income that is very high in certain months but low in others. The same problem may arise if you receive a lump sum payment for work performed over a long period of time (such as a commission or bonus from a deal that took years to complete).
In that case, you may still be able to qualify if you explain your situation to the satisfaction of the court. However, whether you will be successful depends on where you live. Each court has a different interpretation of CMI and how much income it includes in the above circumstances.
If your CMI doesn't accurately reflect your current or actual income, consider getting help from a local bankruptcy lawyer. Use Nolo's Bankruptcy Lawyer Directory to find a bankruptcy attorney near you.