The bankruptcy court pretty much guides you by the hand when it comes to figuring out how much disposable income you have. When you file for Chapter 13 -- the bankruptcy that requires a repayment plan -- one of the documents you must complete and submit is Form 22C. Its formal name is somewhat unwieldy -- it’s the “Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income.” But don't be put off -- the form includes lots of instructions and walks you through the calculations.
The first part of Form 22C details your income -- not what you earned this month, but your average monthly income over the last six months. If you’re completing the form on July 15, this would be January through June; the current unfinished month doesn’t count. You must include all sources of income -- wages, investments, royalties, pensions and business income if you’re self-employed. You must also include alimony, child support and unemployment benefits if this money comes into your household, but you can deduct the child support later on the form because this is for the benefit of your children. Do not list Social Security benefits or any income you receive as a victim of terrorism, a war crime or a crime against humanity. If you’re married and not filing for bankruptcy jointly with your spouse, speak with an attorney. Depending on several factors, you must usually include your spouse's income even though she’s not filing.
Next, you must deal with allowable deductions from your income, but only if the total income you listed in the first part of the form is more than the median for a family of your size. This amount varies by state. If your income is less, you’re done with the form. The court presumes that you have little or no disposable income to pay your unsecured creditors so your repayment plan will be based on your household budget. Your unsecured creditors will receive very little in the way of payments, if anything at all. If your income is more than the median in your state, you can make some deductions on the next part of the form. Several monthly expenses, such as health insurance and secured debt payments like your mortgage, can be subtracted dollar for dollar. But other expenses, such as transportation, rent and personal living costs, are limited to a state or federal standard. For example, if you spend $800 a month on groceries but families of your size in your location average $600, you can only deduct $600.
Your Disposable Income
Your disposable income is the difference between your average income for the last six months and the total of your allowable monthly deductions. For example, if your earnings in the past six months were $3,050, $3,165, $2,890, $2,910, $3,600 and $3,245, then your average monthly income is $3,143 -- the total of the six months, $18,860, divided by six. If your allowable monthly expenses are $3,000, you have $143 a month in disposable income.
Effect on Your Plan
The amount of your total average income -- not disposable income -- decides whether your Chapter 13 repayment plan will last for three or five years. If it’s less than your state’s median income for a family of your size, you’re eligible for a three-year plan. If it’s more, your plan must stretch for five years. Multiply your disposable income by 60 to figure out how much you must pay your unsecured creditors in your Chapter 13 plan. If your disposable income is $143 a month, this comes out to $8,580.