31 Jul Current Monthly Income?: They Didn’t Ask Me!
If you decide to file bankruptcy, you must first calculate your “current monthly income.” Current monthly income (“CMI”) is a highly artificial number that can have big implications on whether you are allowed a Chapter 7 discharge or how much you must pay to your creditors in Chapter 13. Calculating CMI also requires your attorney to obtain pay records for at least six months prior to your bankruptcy filing.
Bankruptcy cases filed after October 17, 2005 are governed by the new bankruptcy law. It’s called BAPCPA, which stands for “Bankruptcy Abuse Prevention and Consumer Protection Act.” One of my colleagues here at Bankruptcy Law Network refers to the law as BARF (“Bankruptcy Abuse Reform Fiasco”). There’s been a lot written about BARF–most of it negative–and justifiably so.
One of the negative aspects of BARF is its obsession with “current monthly income.” At first glance this might seem rational. After all, isn’t a debtor’s current monthly income relevant to his ability to repay his creditors? The answer is, of course, yes. However, “current monthly income” is a defined term in the Bankruptcy Code. CMI doesn’t mean current monthly income as in “this is what my income is currently;” it means using money received by the debtor in the six months prior the month in which the debtor files bankruptcy to determine the debtor’s annual income. By way of example, if the debtor files bankruptcy in July, his CMI is based on income from January through June of that year.
Also, “income” doesn’t mean just taxable income. It could be almost any payments received by the debtor, whether or not the debtor would pay tax on those payments. When I think of CMI I can’t help but think of my high school history teacher, Mrs. Anderson, and her lecture on the Holy Roman Empire, which she referred to as neither holy, nor Roman, nor an empire. That’s CMI in a nutshell: neither current, nor monthly, nor income. It’s just a number that may or may not be an accurate reflection of the debtor’s actual income on the date of filing.
The debtor’s income at filing may be higher or lower than the six-month average. For instance, if the debtor lost her job two months before filing her bankruptcy, the six-month CMI amount would be highly inaccurate. Moreover, there’s nothing special about averaging the income for the six months prior to filing. Why not five months? Or seven? Or three?
The Statement of Financial Affairs–part of the bankruptcy filing–has always required that the debtor list his gross income for the last two years as well as his year-to-date income. Those amounts give the court and United State Trustee’s office all the relevant income information needed regarding the debtor’s past earnings. Consequently, the new law’s obsession over the last six months is nonsensical.
In addition, CMI does not include income like social security or some other forms of income which could be used to pay creditors, but it does include income of a non-filing spouse living with the debtor, even though the spouse has no legal obligation to pay the filing spouse’s debts.
Nevertheless, the CMI figure is what the BARF uses to determine whether the debtor must complete the “means test” in a Chapter 7 case (form B22A) as well as to determine what the debtor’s monthly payments should be in Chapter 13 (form B22C). (Note that many courts have correctly rejected a mechanical application of the means test for determining Chapter 13 payments).
To add insult to injury, figuring CMI requires the debtors to supply their bankruptcy attorney with six months of pay stubs. Any delay in filing requires that this be done for yet another month. As I tell my clients: your new hobby is collecting pay stubs. I also tell them to thank Congress for their new hobby and that Congress did not ask me prior to enacting BARF.
For debtors, it’s important to keep the goal in mind: debt relief. Figuring CMI and collecting pay stubs is a hassle, but it’s just one of many hoops they must jump through to successfully complete their bankruptcy. And remember: don’t blame your lawyer; they didn’t ask him!
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