Legal Definitions - current monthly income

Current Monthly Income (CMI) refers to the average income a person received from all sources during the six full calendar months immediately before they file for bankruptcy. This calculation is a crucial part of determining eligibility for certain types of bankruptcy, particularly Chapter 7. It helps the court assess a person's financial capacity to repay debts, often by comparing it to the median income for their state of residence.

Here are some examples illustrating how Current Monthly Income applies:

• Example 1: Recent Job Loss
  Maria worked as a software engineer for several years, earning a consistent, high salary. Five months ago, she was laid off and has since been working a part-time retail job, earning significantly less. If Maria files for Chapter 7 bankruptcy today, her CMI would be calculated by averaging her higher software engineer salary from the first month of the look-back period with her lower part-time income from the subsequent five months. This average might appear higher than her current actual earnings, as it includes income from before her financial situation drastically changed.

  This example illustrates how CMI averages income over the six-month period, even if the filer's current financial situation has drastically changed, potentially showing a higher income than what they are currently earning.

• Example 2: Fluctuating Freelance Income
  Omar is a freelance graphic designer whose income varies significantly from month to month, depending on the number and size of client projects he secures. Some months he earns a substantial amount, while others are very slow. If Omar decides to file for bankruptcy, his CMI would be determined by adding up all the money he earned from his freelance work over the past six months and then dividing that total by six. This calculation provides a standardized measure of his income despite its monthly fluctuations.

  This demonstrates how CMI accounts for inconsistent earnings by averaging them over a set period, providing a standardized measure despite monthly fluctuations.

• Example 3: Multiple Income Streams
  Sarah works a full-time job, earns extra money each month from driving for a ride-sharing service, and occasionally receives small dividends from a stock portfolio. When calculating her CMI for a potential bankruptcy filing, she would need to include her regular salary, all earnings from the ride-sharing service, and any dividend payments received over the preceding six months. All these sources contribute to her total income for the CMI calculation.

  This highlights that CMI encompasses all forms of income, not just primary employment, ensuring a comprehensive financial picture is considered.