Chapter 13 is a section of the Bankruptcy Code which allows individuals who are in financial difficulty to pay their creditors over time, while under the protection of the Bankruptcy Court. The Bankruptcy Court issues an order, preventing creditors from taking any action against you the moment the bankruptcy is filed just as in a Chapter 7.

You are required to pay your “disposable income”, which is defined as income that is not reasonably necessary for the maintenance and support of you or your dependents, during the “applicable commitment period” . What the Court says is your disposable income may differ greatly from what you think is your disposable income.   The Trustee looks   at the IRS code if it is not allowed as a deduction there, you probably can not take it on the DMI. If you want to take additional expenses you need to have all the receipts to prove the expense for at least 6-12 months. You will need to provide these receipts for expenses to the Trustee. For example all those school supplies you have to buy each year- not an allowable expense.

Prior to October 17, 2005 under the bankruptcy code, disposable income was calculated by subtracting reasonable monthly expenses from actual monthly income. This system was changed by the passing of BACPA.  The new law is not consumer debtor friendly.

Under the current law, however, this is no longer true. pursuant to the required “means test” the amount of your monthly income is equal to your average monthly income received during the previous six months, and not actual income received at the time of filing. This will include any bonus you received, even if they were only a one time payment.   I know this sounds ludicrous! For example, consider the example of a debtor who, during the six months before filing, enjoyed a high income, but whose income now is much lower. The bankruptcy code, as written, requires the use of the higher, but no longer real, income. A debtor who during the last six months had a comparatively low income but who now earns a high income would not have to use the higher income in calculating disposable income.  Bankruptcy courts have struggled to attempt to reconcile the disposable income as determined by the means test with the amount left after deducting actual expenses from actual income. The court might allow the lower disposable income amount calculated by subtracting actual expenses from actual income, but require interest to be paid to unsecured creditors. The Trustees in the Middle District of Florida- Tampa want 5.25% per month interest paid to unsecured creditors for an over the means debtor who pays 100% plan over 60 months at less then the amount determined by the DMI.

Disposable Income is determined by allowing you to deduct “reasonable” expenses.   Higher income Debtors those above with income above the state median for a household of the same size as yours, are not necessarily the expenses you actually incur.  These expenses are based on national or regional standards determined by the IRS and enforced by the US Trustee Office through the Chapter 13 Trustee, they are irrespective of what you actually spend.

Needless to say, this can require involved and detailed analysis, and determining the amount you will pay in a Chapter 13 plan can be very difficult, time consuming and frustrating for you. This is why you need an attorney to file Chapter 13.  Contact my office to schedule an appointment at (727) 410-2705 or you can use our contact form.

Carol A. Lawson, Esq., 28870 U.S. Hwy 19 #300, Hodusa Towers, Clearwater, FL 33761

Phone: (727) 410-2705;   email: [email protected]

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