Since the 2005 Bankruptcy Act, debtors have had to gather and provide their attorneys more documentation. There are a variety of documents that debtors need to collect, but the class of documents that is often difficult to put one’s hands on at the last minute is pay stubs.
The 2005 Act required all debtors to complete a Means Test. In theory, the form was designed to help determine whether a bankruptcy filing was an abuse of the Bankruptcy Code. To properly complete the form, one of the first calculations needed is that of “current monthly income” or CMI.
What is CMI?
Bankruptcy attorneys often joke (and I am one of them that does) that CMI is not current, not monthly and is not income. The Bankruptcy Code defines it as:
(A) …the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on— (i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521 (a)(1)(B)(ii); or (ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521 (a)(1)(B)(ii); and
((B) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor’s spouse if not otherwise a dependent), but excludes benefits received under the Social Security Act, payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes, and payments to victims of international terrorism (as defined in section 2331 of title 18) or domestic terrorism (as defined in section 2331 of title 18) on account of their status as victims of such terrorism.
“Income from all sources” means just that: income from all sources. Having documentation on hand that confirms rental income, child support or alimony or some other regular contribution to household expenses can be helpful – if not necessary. But having employment paystubs for at least the 6 calendar month period prior to the filing date is a necessity.
Since 2005, and more times than I can remember, I have met with clients who have had to file bankruptcy quickly. Whether it be because a foreclosure auction was imminent, or that a tow truck was on its way to repossess the family vehicle, clients have needed the protections of bankruptcy. However, at the last minute, clients did not have 6 months of pay stubs on hand.
If there are financial pressures at home, this week’s Storm Preparation Recommendation is to start collecting payment advices and other evidence of income. Getting in the habit of saving this information now will save the hours, frustration and anxiety of having to gather it quickly when – or if – the need for bankruptcy arises.
