When filing for Chapter 13 bankruptcy, disposable income must be 100% committed to your Chapter 13 repayment plan. This means that any income that is not dedicated to your Chapter 13 repayment plan or living essentials is considered disposable income and can be used to pay your debts.
Here’s what you need to know about disposable income when filing Chapter 13.
Calculating Your Current Monthly Income
When filing Chapter 13, your monthly income is the average monthly income for the previous six months before filing. You should take into consideration all forms of income regardless of whether you are an employee or self-employed.
Disposable income is all income that is not dedicated to your Chapter 13 repayment plan or living essentials. This includes any income you may have earned while in bankruptcy, whether it be wages, social security, pensions, or alimony.
Finding Your State’s Median Income
To find your state’s median income, go to the website of the US Census Bureau. On the website, enter your zip code and the site will give you your state’s median income. Whether you are above or below the median will determine:
- How to calculate your disposable income.
- What your repayment plan will be.
- Which income and expenses are counted in your financial situation.
Calculating Disposable Income If Your Income is Less Than the State Median Income
If your disposable income is less than the state median income, you will need to use a combination of your monthly income minus expenses necessary to support your family, debts, installment payments, debts secured by liens, and other secured debt arrearages. Once you subtract those amounts, you have to pay the rest to your Chapter 13 repayment plan.
Calculating Disposable Income If Your Income is More Than the State Median Income
If your disposable income is more than the state median income, you will need to use expense amounts that the IRS sets, and these could be different from your actual expenses. When your income is more than the state median, you also subtract mandatory payroll deductions, child support and alimony payments, income taxes, Social Security taxes, Medicare taxes, self-employment taxes, out-of-pocket healthcare expenses, and payments to priority claims.
Filing Chapter 13 With the Law Office of Robert S. Brandt for Assistance If you are struggling to make your monthly payments on your debts, filing for Chapter 13 may be the best option for you. A bankruptcy lawyer can help you calculate your disposable income and figure out the best way to use it to pay your debts. Get help filing Chapter 13 from the Law Office of Robert S. Brandt and request a consultation today.