Determining Disposable Income Under Bankruptcy Law
Disposable income can be determined in many different ways depending on your reasons. If you apply for a mortgage, they will use a simple income minus debt formula. When it comes to bankruptcy, you can use a simple approach or a more detailed and deeper formula depending on which bankruptcy chapter you wish to file under. Why is disposable income important? It forms the basis of which chapter you are eligible to file under, and how much income is available for creditors should you opt for a repayment plan.
Your disposable income is based on your average income over the last six months less monthly living expenses. Living expenses can be quite complex with allowances made. For example, if you need a vehicle to get to and from work. Your disposable income will also be affected by how many dependents you have living with you, whether or not you have child support payments to make, and any necessary medical expenses.
To be eligible for a Chapter 7 bankruptcy petition, your assessable income needs to be below the state median. If your income is above this level, then you will need to prove to the court that your disposable income is either zero or in the negative. If you have any disposable income, then your bankruptcy option may be limited to that offered through a Chapter 13.
Under a Chapter 13 bankruptcy petition, your disposable income is claimed by the trustee and used to pay off your debts. You will need to enter into an agreement to make monthly payments for a period of three to five years depending on how much disposable income you have.
The dilemma for many people is which chapter to file under. This is where the services of an experienced bankruptcy attorney is necessary. They will ensure your disposable income is assessed correctly and that you receive the full benefits of a bankruptcy petition.
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