In its infinite wisdom, Congress “reformed” bankruptcy law in 2005 to declare that one’s ability to pay debts in the future should be determined by the average income over the past 6 months.
The phrase that was adopted was “current monthly income”.
Current monthly income is used to determine how much scrutiny the debtor’s election to file bankruptcy will draw. Debtors whose CMI is above the median for their state must complete the means test found in form b-22.
If current monthly income, reduced by allowable future expenses, yields more than a couple hundred dollars, filing Chapter 7 is deemed an abuse.
The means test allows deductions for certain expenses as it tries to find a forumula that applies fairly to everyone. (It doesn’t succeed.)
Here’s how the definition of income to be used in the bankruptcy means test reads:
11 U.S.C. 101(10A) reads:
The term “current monthly income”–
(A) means 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, derived during the 6-month period ending on–
(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii); or
(ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii); and
(B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor’s spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments to victims of international terrorism (as defined in section 2331 of title 18) or domestic terrorism (as defined in section 2331 of title 18) on account of their status as victims of such terrorism.
Years after the definition was enacted, courts are still issuing conflicting decisions about its meaning and application in bankruptcy practice.
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