Ponte Vedra Bankruptcy Attorney: “Disposable Income”

#bankruptcy, #chapter 13, #b22c
One of the first questions I get when I tell people that they have to present a repayment plan in a Chapter 13 bankruptcy is, “How do they determine how much I have to pay?”. Since in most cases they’ll have to make payments for five years (60 months) the amount that must be paid is critical to their success. Not making a payment means the discharge is never granted and the debtor is left in about the same status they were previous to the bankruptcy.
The analysis of the debtor begins at the filing of their Form B22C. The B22C lists the debtor(s) income, deductions for reasonable and necessary living expenses and determines the amount of disposable income the debtor(s) then have. The disposable income is the maximum monthly payment that unsecured creditors will be receive during the bankruptcy.
These numbers can get tricky because what is reasonably necessary is defined by the IRS and may be more or less than the debtor(s) actually spend. Fortunately, these items are open to argument. If the debtor spends more on medicine than the IRS average, a debtor can get an increased deduction for these expenses as long as they can provide documentation that funds were actually expended.
Another important caveat is that the B22C must be updated if there are any substantial changes in the debtor’s income. This can be a double edged sword because an increase in income can cause more money to go to unsecured creditors, but a decrease in income can cause the unsecured creditors to be paid less.
Occasionally, debtors want to keep property that does not qualify as exempt from collection for the benefit of creditors. When this happens, they debtor must then commit additional funds to the unsecured creditors equal to the value of the items they’re keeping. Of course, if the unsecured creditors are already getting 100% of what they’re owed, no additional payments are required.
If you have questions about the calculation of your Chapter 13 plan payment contact a Ponte Vedra Bankruptcy Attorney or call us at (904) 685-1200 for a free consultation.