Income Documentation in Bankruptcy


Debt and Expenses are only half the equation. Legal advice cannot be rendered without understanding household income, household expenses, the debt to income ratio.

Current Monthly Income (CMI)

In contemplating bankruptcy as an option we examine if a debtor qualifies for a Chapter 7 discharge. Attorney will calculate the six month average gross (before taxes) income, This number is called the Current Monthly Income (CMI).

If CMI exceeds the California Median a Means Test analysis is necessary to determine if a debtor can obtain Chapter 7 relief.  If the answer is no, then we look to Chapter 13 and a non-bankruptcy alternative to determine a proper remedy.


Some call it the Mean Means Test

Take Six Month Average Gross Income and subtract from it “allowable” expenses. Gross means income BEFORE any deductions are taken, such as income taxes, health insurance, union dues etc.   To do this accurately, specific income documentation and other details you are asked on the Intake Sheet are needed. After deducting “allowable expenses” what is left is known as Disposable Monthly Income (DMI). If the DMI exceeds acceptable levels, the debtor is presumed to be able to afford to repay if not all then at least some portion of the debt.

Want the legal version? The Code explicitly defines “disposable income” as current monthly income (see 11 U.S.C. §101(10A)) less reasonable expenditures for a debtor’s support, a debtor’s dependent’s support, a debtor’s domestic support obligation, qualifying charitable contributions up to a specified limit and for the continued viability of a debtor’s business. 11 U.S.C. §1325(b)(2). If a debtor’s current monthly income exceeds the median family income of his or her state, the reasonableness of the expenditure amounts is determined by tests set forth in 11 U.S.C. §707(b)(2). 11 U.S.C. §1325(b)(3). Want to see the Form?

While Chapter 7 for many is the preferred method of obtaining Bankruptcy relief, in some circumstances a Chapter 13 can be a better choice. This is true when a debtor is past due on car loans/mortgages and wishes to stop foreclosure/repossession or will be attempting to eliminate a second deed of trust mortgage from a primary residence.

It is impossible to calculate a potential payment plan under Chapter 13 without properly calculating Disposable Monthly Income as well as balances owed on secured debt obligation and unsecured priority debt (such as income taxes).