How Does Disposable Income Affect a Chapter 13 Bankruptcy?

 Posted on February 09, 2023 in Bankruptcy

If you are considering filing for bankruptcy, you have multiple options. Chapter 13 bankruptcy may be the preferred choice in situations where you want to avoid the loss of your assets or where you wish to avoid foreclosure and maintain ownership of your home. In a Chapter 13 bankruptcy, a repayment plan will be created, and you will make ongoing payments toward this plan for several years. If your income is below the median income in your state, your repayment plan will last for three years. If your income is above the median, you will be required to make payments for five years. The amount you will be required to pay will be based on your disposable income. However, the process of calculating your disposable income can be complicated, and you will need to understand the factors that may affect the amount you will pay and your ongoing financial concerns.

How Disposable Income Is Calculated

Disposable income is the money that you have left over after you pay your essential living expenses. You should be able to make sure you will have sufficient financial resources to support yourself and your dependents during a Chapter 13 bankruptcy. After calculating the amount you earn and setting aside reasonable amounts that are necessary to meet your own needs and those of your family, the remaining amount may be put toward your Chapter 13 repayment plan.

To calculate your disposable income, you will first determine your current monthly income. The primary source of income will likely be money earned through employment, including hourly wages, salary, bonuses, commissions, or tips. You will need to calculate the average monthly amount you have earned over the six months before filing for bankruptcy. You may also list any other sources of income, including spousal support you receive from an ex-spouse, income from operating a business, income from real estate property you own, interests, dividends, royalties, and payments from a pension or retirement plan.

You will then subtract all applicable expenses. These may include:

• Food and clothing allowances, which are based on IRS standards for the number of people in your family.

• Healthcare allowances, which are based on IRS standards for out-of-pocket medical expenses. The amount of these allowances will differ depending on whether you or your dependents are over or under the age of 65.

• Housing and utilities, including mortgage or rent payments and homeowner's or renter's insurance.

• Transportation expenses, which may include auto loan or lease payments, operating expenses for vehicles, and/or the costs of using public transportation.

• Federal, state, and local taxes, including income taxes, self-employment taxes, Social Security taxes, and Medicare taxes. Taxes withheld from your pay may be deducted, but if you expect to receive tax refunds, the amount you receive must be divided by 12 and subtracted from the amount of taxes withheld.

• Involuntary deductions from income, including union dues, costs of uniforms or equipment, or mandatory contributions to retirement accounts.

• Life insurance premiums for yourself, as well as premiums for your spouse if you and your spouse are filing for bankruptcy together.

• Domestic support obligations, including child support or spousal support that you pay on a monthly basis.

• Educational expenses that are required as a condition of your job or paid for the benefit of a child with a disability.

• Childcare expenses, including the costs of daycare, babysitting, preschool, or after-school programs.

• Telephone services that are necessary to address the health and welfare of your dependents or that are used for work but are not paid for by your employer. Basic telephone, cell phone, and home internet services may not be deducted.

• Health insurance expenses, including monthly premiums, disability insurance, or money contributed to health savings accounts.

• Extraordinary expenses for the care of adult family members who are elderly, disabled, or chronically ill.

• Educational expenses for children under the age of 18, including school fees, supplies, or private school tuition. There is a monthly cap on the amount that may be deducted, and it is currently set at $189.58 per child.

• Charitable contributions of up to 15 percent of your gross monthly income.

• Secured debts, including monthly payments toward a mortgage or auto loan, as well as any other debts for which your home, vehicle, or other property necessary for the support of your dependents has been used as collateral.

Once your disposable income has been calculated, that number will be used to determine how much you will pay each month under your repayment plan. After you complete all payments in the plan, any remaining unsecured debts will be discharged.

Contact Our Tarrant County Chapter 13 Bankruptcy Attorneys

If you are considering filing for Chapter 13 bankruptcy, it is important to understand the factors that will be considered when calculating your disposable income. At Acker Warren P.C., our Fort Worth bankruptcy lawyers can help you compile all of the required financial information needed during your case, and we will ensure that your disposable income will be calculated correctly. We will work to ensure that you will be able to establish a workable repayment plan that will allow you to complete the bankruptcy process and receive relief from your debts. To learn more about how we can assist with bankruptcy-related issues, contact us at 817-752-9033 and set up a free consultation.

Sources:

https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

https://www.uscourts.gov/sites/default/files/form_b122c-1.pdf

https://www.uscourts.gov/sites/default/files/form_b_122c-2.pdf