I’ve stated regularly on this Web site that a chapter 13 plan is paid out of a debtor’s disposable income, some of which must go to the unsecured creditors in New York bankruptcy. But what is the definition of “disposable income”? It’s more technical than one might think, and more surprisingly it won’t be found in the definitions section of the Bankruptcy Code, section 101.
Instead, it appears in section 1325(b)(2), which concerns many of the important details of the chapter 13 repayment plan the debtor must propose.
Simply put, “disposable income” is “current monthly income received by the debtor” along with a number of deductions, summarized below:
(1) Payments received from an outside source for children’s reasonably necessary needs, e.g. child support, disability payments, etc.
(2) Reasonably necessary (that phrase appears frequently) expenditures for maintenance of the debtor and the debtor’s dependents.
(3) Similar expenditures on domestic support obligations that first become payable after the petition is filed.
(4) Contributions for qualified charitable or religious organizations, an issue discussed here. These can account for no more than 15 percent of a debtor’s gross income for the contribution year.
(5) Necessary payments for maintaining a debtor’s business.
Aside from the charitable contributions, the method of determining the reasonableness of the deductions can be found in section 707(b)(2)(A)-(B), which mostly deals with the chapter 7 means test. These definitions ensure that the debtor can, for example, maintain health insurance and care for dependents, whether old or young.
On the other hand, the “current monthly income” that forms the basis of “disposable income” is defined in the Bankruptcy Code’s definitions, section 101(10A). That’s simply the debtor’s average income over the previous six months less Social Security payments and payments to victims of war crimes or terrorism. The same definition of current monthly income is also used in chapter 7 to establish whether the debtor must take the means test.
To summarize, a debtor’s “current monthly income” less the expenses listed above equals the debtor’s “disposable income” for the purposes of chapter 13. Because crafting a repayment plan requires careful planning, it’s essential to hire an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 Bankrutpcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.