How to Figure Out Your Disposable Income For Chapter 13 Bankruptcy

If you have chosen to file a Chapter 13 bankruptcy over a Chapter 7 bankruptcy, then there are a couple of issues that you may run into that could complicate the process- such as determining your disposable income. On a whole, the bankruptcy process is considered to be quite complicated, and when you are putting together a Chapter 13 repayment plan, it can be even more difficult to understand all the terms and conditions associated with the bankruptcy. Making matters worse, the laws that surround bankruptcy have recently changed and the definitions of certain terms- such as disposable income- have been amended as well. So, how do you figure out your disposable income for Chapter 13 bankruptcy?

What is Disposable Income in a Chapter 13 Bankruptcy?

While at a glance the term disposable income looks simple and self explanatory, when it comes to a Chapter 13 bankruptcy, those two words can cause a host of complications, and it is important you understand exactly what they mean in the context of Chapter 13.'

Disposable income can best be defined as the total amount of money that you have left over after paying your allowable expenses.
It is usually calculated via a means test formula.
It is called disposable income because it refers to money that you have left at your disposal therefore that disposable money can be factored into your Chapter 13 repayment plan. The complication lay in the foundation of the means test.

Using the Means Test to Determine Your Disposable Income

The means test is used to calculate your allowable income based on your expenses and your disposable income.' However, this formula is not (according to many lawyers) an entirely accurate means of measuring your future ability to pay any payments in the proposed payment plan that is mandatory to have for a Chapter 13 bankruptcy.' This is the major argument used by attorneys.

The means test analyzes prior financial history, not a current or a future forecast of the clients ability to pay back his or her debts on a payment plan. To determine how much you have to pay, an average of your income over the previous six months is taken. Living expenses (not counting debt payments) are subtracted from this average. Then, depending on whether your income is above or below the median income, a specific formula is used by the court to determine how much you have to pay back to creditors each month.

Get Help

The key is to have a good attorney in order to assist with the overall process.' A bankruptcy attorney can assist you in understanding what formula will apply in your situation and can help you to learn exactly how much you will have to pay back under a Chapter 13 bankruptcy repayment plan.

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