Bankruptcy And Disposable Income

Hello everyone-

I am curious- what is disposable income and how does this relate to bankruptcy? I have a lot of debt at this time and am considering talking to a bankruptcy attorney to discuss my options. I keep reading that disposable income and bankruptcy are related? Any information would be helpful, thank you!

Hi ErickJ,

Disposable income, in simple terms, refers to the amount of money that is left over after a person's necessary expenses are subtracted from the net income. That amount of money is at their "disposal" to do what they want with it.

And disposable income is in fact related to bankruptcy. If a debtor files Chapter 13 Bankruptcy, they ultimately will pay off their debts through monthly installments over an extended period of time (typically 4 years). The court appointed trustee assigned the case will base how much the debtor's monthly payment will be by determining the amount of disposable income that person has each month. To do this, again, the trustee will look at the debtor's net monthly income and monthly expenses to see what is left over that can be put towards the repayment of that person's debts.  

I hope that helps a little!

Qbama is right, but another reason why your disposable income is important is because the bankruptcy courts look at that to determine whether you will have to file Chapter 7 or Chapter 13.  Note:  the courts will only do this if you earn more than the median income in your state for your family size.  If you fall under this category, you will have to pass the means test, which compares your income over the last 6 months to your monthly expenses.  If your monthly disposable income turns out to be more than $150 (not sure on this number), then you will be forced to file Chapter 13.  If you didn't read the description above about Ch. 13 by Qbama, check it out again.  It's not a great option because you kill your credit and still pay off your debts. 

If you have unsecured debt like credit cards and personal loans, you may be able to avoid bankruptcy altogether. 

 

Thank you all as this is very helpful information. But what if I do not qualify for Chapter 7 BK and do not have enough disposable income to make monthly installments through a Chapter 13 BK plan? What are my options after that? Do I even have any?

Again, thank you for all of your input.

I would say that if you do not qualify for Chapter 7 and cannot file Chapter 13 your best bet may be looking into debt settlement as an alternative. Particularly if there is noone to turn to that may be able to help you out with finances. Typically, people who are behind on payments and trying to avoid filing bankruptcy turn to settlement as their "way out."

You can fill out a form on DestroyDebt.Com to get matched up with a qualified provider if you don't have the time to find a reputable company on your own.

Bankruptcy and disposable income or debt settlement - what can debt settlement do?

Debt settlement may be able to reduce the consumer's total balance to more or less half of its original amount, only he/she must pay off that negotiated amount in full.

Debt settlement works for debts amounting to $10,000 or more.

If you're wondering how much it's going to cost you - It's 15% of the total debt amount spread out over 18 months usually or  a percentage of the settlement amount, usually between 20-25%.

is there a bankruptcy and disposable income calculator or a bankruptcy lawyer would do that for the consumer?

I don't know if there is a disposable income calculator? But there is a bankruptcy means test calculator:

http://www.legalconsumer.com/bankruptcy/nolo/