Why Does Current Monthly Income Matter for Bankruptcy?

Any individual who is currently considering a personal bankruptcy filing may have seen information about “current monthly income” or heard about the relevance of “current monthly income” in a bankruptcy case. What is “current monthly income,” and why does it matter if you are thinking about filing for bankruptcy? In short, current monthly income is an extremely important data point for determining eligibility for individual liquidation bankruptcy filings, and for determining the length of repayment plans in individual reorganization bankruptcy cases. One of the experienced West Palm Beach bankruptcy lawyers at Kelley, Fulton, Kaplan & Eller can tell you more.

Defining Current Monthly Income

 What is “current monthly income”? This term is defined in the US Bankruptcy Code to mean “the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income,” typically that is received in the six months prior to the bankruptcy filing.

Current monthly income includes any contributions to household expenses the debtor receives from a nondebtor (including the debtor’s spouse if the spouse is not part of a joint petition). Currently monthly income does not include income received from Social Security, including Social Security disability, or restitution payments in connection with the debtor being the victim of a crime, such as a crime of terrorism.

Why Does Current Monthly Income Matter for Me?

 If you are considering bankruptcy or planning to file, you will need to understand why your current monthly income is relevant, and how the bankruptcy court will consider it in relation to your bankruptcy case. It will all depend on the type of bankruptcy case you want to file.

For a Chapter 7 bankruptcy case, an individual debtor will need to take the “means test” if their current monthly income is higher than the Florida median. The “means test” is used to determine whether a Chapter 7 bankruptcy case would be abusive — in effect, whether the debtor has sufficient income or assets that it would be abusive for the debtor to be able to liquidate non-exempt assets and receive a discharge of debts.

For a Chapter 13 case, the debtor’s current monthly income is used to determine whether they will be able to have a repayment plan approved for three or five years. Under US bankruptcy law, if a debtor has a current monthly income lower than the Florida median, then the debtor will have to create a repayment plan to last for just three years unless the bankruptcy court approves a longer plan. Approval of a longer plan length is based on cause. If a debtor has a current monthly income above the Florida median, then the repayment plan is for a period of five years. Plans are never longer than five years, even when a debtor with a current monthly income below the median can have a longer plan approved for cause.

Contact a West Palm Beach Bankruptcy Attorneys Today 

Do you have questions about your current monthly income and how it will impact your bankruptcy filing? An experienced West Palm Beach bankruptcy lawyer at Kelley, Fulton, Kaplan & Eller can speak with you today and can assist you with your bankruptcy case.

Sources:

law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=11-USC-1037399389-2069847842&term_occur=999&term_src=title:11:chapter:1:section:101#:~:text=(10A)%20The%20term%20%E2%80%9Ccurrent,last%20day%20of%20the%20calendar

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics#:~:text=The%20%22current%20monthly%20income%22%20received,including%20income%20from%20the%20debtor’s