Income Question

[NSH]

For Chapter 7 is your "income" your gross income before any tax deductions? Or is it the income you report after everything has been adjusted?

For instance, in NY, I think the Median income is $47,900.00, single person no dependents. Say someone has a gross salary of $57K, but after deductions, they end up taxed on $40K. Which is the income that BK courts care about in this instance, the $40K or the $57K?

[justbroke]

There are several income calculations in bankruptcy. The first is called your current monthly income (or CMI). CMI is income from all sources regardless of taxability, but excludes any payment from Social Security or any special war reparations. This amount is a gross amount. After that, something known as the disposable monthly income (or DMI) is calcualted. DMI is your income less taxes and applicable expenses. In some cases, you may need to add back tax refunds to your DMI.

The calculation for whether you are over or under the median is really used in Chapter 13 cases. You should not "really" worry about that calculation. What you worry about is whether your CMI (income) less your allowed expenses, produces a DMI which allows you to file a Chapter 7 rather than a Chapter 13. (There are cases where a Chapter 13 is necessary even if the DMI allows one to file a Chapter 7.)

Bottom line, your CMI is your gross income from all sources.

[NSH]

Sorry I'm confused. How, say in an instance like that, would one know whether those calculations yield an availability of chapter 7 or if they would yield the need to go with a Ch 13? My understanding, which I believe is wrong, was that if your yearly income was above the median (say $47-48K for NY) then you were subject to a means test or something.

[justbroke]

Sorry I'm confused. How, say in an instance like that, would one know whether those calculations yield an availability of chapter 7 or if they would yield the need to go with a Ch 13? My understanding, which I believe is wrong, was that if your yearly income was above the median (say $47-48K for NY) then you were subject to a means test or something.

You would run the numbers through the Means Test. The Means Test is the mechanism, created by Congress, to determine your "Current Monthly Income" (CMI) and your "Disposable Monthly Income" (DMI).

You can go to http://legalconsumer.com (Legal Consumer) and run the Means Test yourself. The Means Test is a complicated formula so it would do no good for me to attempt to explain it or show you how to run the numbers In fact, when I want to run the mans test, I go to Legal Consumer or fill out the Means Test form (Official Form B22-A/B22-C).

EVERYONE but a person who is claiming to be a non-consumer, must file a Means Test. When people say that an under the median income filer does not file a means test, is really a misnomer. An under-the-median income filer does file a Means Test but does not need to complete all the sections. An over-the-median income filer must complete the majority of the Means Test form and is subject to these special calculations to determine the "disposable monthly income" DMI.

Let me add that Means Testing is not the sole thing that determine eligibility for a Chapter 7 discharge. The Trustee will also look at Schedules I and J to determine the actual disposable income in both over and under the median income cases.

[Pizza]

The median income for your state is gross, so naturally your numbers would also be gross for a fair comparison.