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Simple English definitions for legal terms

current monthly income

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A quick definition of current monthly income:

Current monthly income: The amount of money a person earns on average each month from all sources in the six months before filing for bankruptcy. This determines if they are eligible for Chapter 7 bankruptcy, which requires their income to be below the state median or pass a test. However, this method may not be accurate if a person's income has recently decreased significantly.

A more thorough explanation:

Definition: Current monthly income (CMI) is the average income a person receives from all sources in the six months before filing for bankruptcy. It is used to determine a person's eligibility for Chapter 7 bankruptcy, which requires their CMI to be below the state median or pass a multi-factored test. However, this method of calculation can be misleading if a person's income has significantly decreased in the prior months.

  • John's CMI is $3,000 per month. He lives in a state where the median income is $4,000 per month, so he is eligible for Chapter 7 bankruptcy.
  • Sarah's CMI is $6,000 per month. She lives in a state where the median income is $5,000 per month, but she fails the multi-factored test and is not eligible for Chapter 7 bankruptcy.
  • Mike's CMI was $8,000 per month, but he lost his job and his income dropped to $2,000 per month in the six months before filing for bankruptcy. His CMI is still calculated as $8,000 per month, which may unfairly disqualify him from Chapter 7 bankruptcy.

The examples illustrate how CMI is used to determine a person's eligibility for Chapter 7 bankruptcy. John's CMI is below the state median, so he is eligible. Sarah's CMI is above the state median, but she fails the multi-factored test, so she is not eligible. Mike's CMI was high before he lost his job, but his current income is much lower. However, his CMI is still calculated based on his previous income, which may unfairly disqualify him from Chapter 7 bankruptcy.

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