Disposable income is the amount that remains after subtracting allowed bankruptcy expenses from your monthly gross income. Your disposable income will determine whether you qualify to discharge (wipe out) debt in Chapter 7 or Chapter 13 bankruptcy.
Claiming Deductions in Bankruptcy
When you claim your deductions, you'll be able to use the actual cost of some expenses. For others, such as the allowance for food, clothing, and housing, you'll use the national and local standards.
Here's a list of some of the deductions you'll be allowed to take:
- food and clothing
- housing and utilities
- transportation costs
- taxes
- involuntary payroll deductions
- life insurance
- court-ordered payments, such as family support
- certain education costs
- childcare expenses, and
- health care costs
How Disposable Income is Determined in Bankruptcy
To determine your disposable income, you'll complete one of two forms, depending on the chapter you intend to file (each chapter allows for similar deductions).
Disposable Income in Chapter 7 Bankruptcy
In a Chapter 7 case, you'll complete the Chapter 7 Means Test Calculation form. You'll deduct allowed expenses to find your disposable monthly income. Next, you'll multiply that amount by 60 months. If the figure exceeds the maximum amount currently allowed (which will be listed on the form), you won't qualify for a discharge. Additionally, you might not qualify if your disposable income is sufficient to pay 25% or more of your unsecured, nonpriority debt (such as credit card balances, medical bills, and personal loans).
Disposable Income in Chapter 13 Bankruptcy
In a Chapter 13 matter, you'll fill out the Chapter 13 Calculation of Your Disposable Income form. The amount that remains after deducting expenses is your monthly disposable income. You'll pay that number to your unsecured, nonpriority creditors each month over the course of your three- to five-year repayment plan.
Because each case is different, determining whether you qualify for bankruptcy (as well as completing the appropriate forms) can be challenging. When in doubt, contact a knowledgeable bankruptcy attorney.
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