Means test step 1: Debtor’s current monthly income (CMI)

Current monthly income includes most sources

Determining your current monthly income (CMI) and annualized current monthly income (ACMI) is done by adding your income from all sources.

Therefore, income derived from wages, commissions, operation of a business, interest, dividends, royalties, rent, pension and retirement, and unemployment benefits (except unemployment received under the Social Security Act) is included in the income calculation. Also included is any income received as a contribution to the debtor’s (your) household expenses by another person.

However, income derived from the following is not included in the income calculation:

  • Social Security benefits.
  • Unemployment benefits under the Social Security Act.
  • Tax refunds (although there have been some exceptions).
  • Payments received as a victim of a war crime, crime against humanity, or terrorism.

Spouse’s income

The debtor’s income does not include the debtor’s spouse’s income if the spouse is not joining the petition or if the spouse and the debtor live separately. However, the portion of the debtor’s spouse’s income that is contributed to household expenses is included in the debtor’s CMI to determine whether the bankruptcy court, trustee, or bankruptcy administrator have standing to challenge the case filed by a debtor whose income is below the state median, unless the spouse lives separate from the debtor.

Self-employed income

To determine the monthly income for self-employed individuals or those having rental income, use the net income received after expenses are paid. For example, if the debtor rents a condo for $1,500 per month and the mortgage on the condo is $1,200 per month, the debtor’s monthly income is $300.

Use the debtor’s gross income for the 6-month period before filing bankruptcy. The 6-month period ends on the last day of the calendar month preceding the filing. Divide that number by six to determine the CMI.

Example of calculations

For a hypothetical, consider an individual debtor who lives in Orange County, Florida. He is employed by ABC Plumbing, Inc. as a plumber. His family consists of himself and his wife, a homemaker with no outside income. He made $34,650 in the 6-month period before filing bankruptcy, and had no other income. His CMI would be calculated as follows:

$34,650 ÷ 6 = $5,775 CMI

To determine the ACMI, multiply the CMI by 12:

$5,775 X 12 = $69,300 ACMI

The Median Income Schedule is determined and reported by the Bureau of Census. Median income is set forth by state and the number of family members in the debtor’s household. You may access the median income table from the United States Trustees’ website at http://www.justice.gov/ust/eo/bapcpa/meanstesting.htm.

The bankruptcy code defines “median family income” as the income both calculated and reported by the Bureau of Census in the then most recent year adjusted as necessary by the Consumer Price Index (CPI). Each year, the Executive Office of the U.S. Trustees (EOUST) will publish new median income schedules that will be adjusted for changes in the CPI. Therefore, it is expected that it will not be necessary to add an adjustment for the CPI directly on the form.

Compare the debtor’s ACMI with the median income for the debtor’s state and number of family members in the debtor’s household. If the debtor’s ACMI is less than the applicable median income as shown on the table, no presumption of abuse exists and the debtor may proceed under Chapter 7. Further means test calculations are not necessary. If the debtor’s ACMI is more than the applicable median income, the debtor must complete the remainder of the means test calculations.

In our hypothetical case, our debtor’s ACMI is greater than the Median Family Income. Therefore, we must proceed with the Means Test Calculation.