20 Dec “Current Monthly Income” In Bankruptcy – Neither Current, Nor Monthly?
The bankruptcy laws force us to look at Current Monthly Income. Defining that term is easier said than done.
In chapter 13, people pay their disposable income for up to 5 years to a trustee who then pays the money, less his commission, to creditors.
The 2005 Bankruptcy Code amendments, called BAPCPA, devised a means test to figure out if a debtor with more than median income â€“ in other words making more than 50% of the people in the state â€“ â€œovercomes the presumption of abuseâ€ which arises when he files a chapter 7 case instead of a chapter 13 case.
How does Congress want you to figure out if you make more than the median income?
Congress wants to know your â€œcurrent monthly incomeâ€.
Oddly enough, â€œcurrent monthly incomeâ€ is neither â€œcurrentâ€ nor â€œmonthlyâ€.
What we do is take the average of your gross income from all sources â€“ another point of controversy â€“ for the last six months.
We then divide this by 6 to get a â€œcurrent monthly incomeâ€ and then multiply this by 12 to find out what your income for a year would be at the rate of the average gross income you received during the past 6 months.
Then we compare this to the median income for your state and for a family your size to see if you are above or below the median income.
Thatâ€™s why your bankruptcy attorney will ask for your pay-stubs for the past six months.
Itâ€™s a pain in the neck.
We donâ€™t like it either.
It takes time and costs you money.
But itâ€™s the law.
We always tell our clients that if you donâ€™t like the law, write your Congressman.
He or she gave you this law in the first place.
Oddly enough, once we figure out the current monthly income, thatâ€™s not necessarily what youâ€™d pay to the chapter 13 trustee during the course of a chapter 13 plan.
Thatâ€™s because in chapter 13, you pay â€œprojected monthly incomeâ€ which is not necessarily the same as â€œcurrent monthly incomeâ€.
But what the heck is â€œprojected monthly incomeâ€?
We donâ€™t really know because that term is not defined in the Bankruptcy Code and it will take a Supreme Court decision to finally figure out what it means.
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