Disposable Income In A Bankruptcy

Law Office of John Bristol
1776 N. Pine Island Road, #224, Plantation, Florida 33322
(954) 475-2265

Since 1988, Fort Lauderdale Bankruptcy Attorney Center of John Bristol has filed more than 5,000 consumer Chapter 7 Bankruptcy and Chapter 13 Bankruptcy Cases in the Fort Lauderdale area (the Southern District of Florida). As a Fort Lauderdale Bankruptcy Attorney; John concentrates his Bankruptcy law practice only in Broward County. We offer PAYMENT PLANS and give FREE CONSULTATIONS (954) 475-2265

Disposable Income Is The Money You Have Left Over After You Pay Your Bills

Disposable income is total personal income minus personal current expenses.   The you subtract personal outlays (which includes the major category of personal consumption expenditure yields personal (or, private) savings.  This means the income left after paying away all the expenses is referred to as disposable income. Restated, consumption expenditure plus savings equals disposable income after accounting for transfers such as payments to children in school or elderly parents’ living arrangements. The spending of money is the fraction of a change in income that is consumed.

For the purposes of calculating the amount of income subject to garnishments, United States' federal law defines disposable income as an individual's compensation (including salary, overtime, bonuses, commission, and paid leave) after the deduction of health insurance premiums and any amounts required to be deducted by law. Amounts required to be deducted by law include federal, state, and local taxes, state unemployment and disability taxes, social security taxes, and other garnishments or levies, but does not include such deductions as voluntary retirement contributions and transportation deductions. Those deductions would be made only after calculating the amount of the garnishment or levy. The definition of disposable income varies for the purpose of state and local garnishments and levies.

Discretionary income is disposable income (after-tax income), minus all payments that are necessary to meet current bills. It is total personal income after subtracting taxes and typical expenses (such as rent or mortgages utilities, insurance, medical, tithe, transportation, property maintenance, child support, food and sundries, etc.) to maintain a certain standard of living. It is the amount of an individual's income available for spending after the essentials (such as food, clothing, and shelter) have been taken care of:

Discretionary income = gross income - taxes - all  payments (bills) paid

Despite the definitions above, disposable income is often incorrectly used to denote discretionary income. For example, people commonly refer to disposable income as the amount of "play money" left to spend or save. The disposable income is the expression of the ratio of total household debt to income.  For more information see Wikipedia Disposable Income

The Law Office of John Bristol - 1776 N. Pine Island Rd, #224, Plantation, Fl. - (954) 475-2265

In Chapter 13 bankruptcy, you must devote all of your disposable income to your Chapter 13 Bankruptcy repayment plan. Your Chapter 13 Bankruptcy Lawyer will prepare your bankruptcy plan. The Chapter 13 Bankruptcy Plan lasts either three or five years, you pay 100% of certain debts and a portion of other types of debts. Keep in mind that even if you can fund a Chapter 13 Bankruptcy plan with your disposable income, you still have to pay your unsecured creditors at least what they would have received had you filed for Chapter 7 bankruptcy. If you can't do that, your plan won't be confirmed by the Bankruptcy Court. (To learn more about the plan, which debts must be paid in full, and how much your unsecured creditors must receive, see The Chapter 13 Bankruptcy Repayment Plan.)

Determining your "disposable income" for purposes of your repayment plan can be tricky business. And the calculation is different depending on whether your income is more or less than the median income in your state. Here are the basic rules. To determine your current monthly income in Chapter 13 bankruptcy, you take your average monthly income for the six-month period prior to filing for bankruptcy. Attorney Bristol, as your Chapter 13 Bankruptcy Lawyer will advise you of all aspect of your Bankruptcy filing, including your chapter 13 bankruptcy disposable income.


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Fort Lauderdale Bankruptcy Attorney John Bristol has filed more than 10,000 Bankruptcy cases in Florida since 1988. We concentrate Now our law practice on Chapter 7 Bankruptcy (liquidation) and Chapter 13 Bankruptcy (personal reorganization) cases in the Fort Lauderdale and Broward County area

You must include gross wages, salary, tips, bonuses, overtime, commissions, income from the operation of a business, rental income, income from interest, dividends, and royalties, pension and retirement income, unemployment compensation, income someone else contributes to your household on a regular basis, and income received from other sources. What happens in your actual income differs significantly from your average income in the prior six months? In a 2010 U.S. Supreme Court case, Hamilton v. Lanning, Court ruled that bankruptcy courts may consider changes in the your current income and expenses when calculating your disposable income.

Disposable income is the amount of income left over after the payment of required creditors and allowed monthly expenses. If your income falls below the median income in your state, use your current monthly income minus child support payments, foster care payments, and disability payments necessary for the care of a child. You then subtract the following to come up with your disposable income: expenses reasonably necessary to support your children and yourself (such as rent, utilities, costs of clothing, food, medical and dental expenses, etc.) installment payments priority debts secured debt arrearages (like back mortgage or car payments), and debts secured by liens.

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If your income exceeds the median income in your state, calculating your disposable income is more complicated. You must use the expense amounts set by the IRS, which may differ from your actual expenses. In addition, you also subtract: out-of-pocket healthcare expenses income taxes, self-employment taxes, Social Security taxes, and Medicare taxes mandatory payroll deductions child support and alimony payments, and payments to priority claims. By Kathleen Michon, J.D. - http://www.thebankruptcysite.org/resources/bankruptcy/chapter-13/chapter-13-bankruptcy-laws-your-disposable-income#

In order to be confirmed (approved) by the court, your Chapter 13 Bankruptcy repayment plan must represent your "best effort" at paying back your nonpriority unsecured creditors. This generally means that you must pay all of your disposable income into your Chapter 13 Bankruptcy plan. (For this reason, this is also called the disposable income test.)

When you file Bankruptcy, you propose a Chapter 13 bankruptcy plan to pay back your creditors. Your repayment plan has to be approved by the court before it can be finalized. After you file your plan, the court and the trustee review it to make sure it complies with all Chapter 13 bankruptcy laws and requirements. One such requirement is that all of your disposable income must be used to pay nonpriority unsecured creditors (such as credit card companies) in your plan. This is referred to as the best effort requirement or the “best efforts test.”

As part of your bankruptcy petition, you must complete Form 22C, the" Chapter 13 Bankruptcy Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income." This form is very similar to the Chapter 7 Bankruptcy means test form and is sometimes referred to as the Chapter 13 Bankruptcy means test. However, instead of determining if you qualify for Chapter 7 bankruptcy, it determines how much you should be paying nonpriority unsecured creditors through your Chapter 13 bankruptcy plan based on your monthly disposable income.

When completing the Chapter 13 bankruptcy means test, you must provide your average monthly income for the six-month period prior to filing for bankruptcy. You then compare your average income against the median state income for a household of the same size. How much you must pay nonpriority unsecured creditors depends on whether your income is above or below the state median. If your income is below the state median, you are not required to complete the entire means test form. As a result, a monthly disposable income figure is not calculated. Essentially, if you are below median, the court assumes that you have no disposable income and your plan payment is primarily based on your budget. This means that the filing bankruptcy court will usually approve your Chapter 13 bankruptcy plan even if you are paying little or nothing to your nonpriority unsecured creditors. In addition, your plan can be only three years long instead of five. Your Bankruptcy Lawyer, John Bristol will prepare your chapter 13 bankruptcy plan.

You must complete the entire means test form if your income is above the state median. To calculate your monthly disposable income, the means test uses national and local standards for most living expenses. However, you are also allowed to deduct your actual expenses for certain items such as your mortgage, taxes, and health insurance. If you have a positive monthly disposable income figure, you multiply it by 60 to figure out how much you must pay nonpriority unsecured creditors in your plan. This is because above median debtors are required to be in a five-year bankruptcy plan. By Baran Bulkat, Bankruptcy Attorney

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The Law Office of John Bristol, 1776 N. Pine Island Road, #224, Plantation, Florida 33322 is a debt relief agency.  We help people file for bankruptcy relief under the Bankruptcy Code.  Disclosure: The hiring of a lawyer is an important decision that should not be based solely on advertising.  Before you decide please ask us for information concerning out qualifications and experience

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