How Disposable Income is Calculated in a Chapter 13 Bankruptcy

Homeowners and others who have a steady income but have fallen behind on their financial obligations frequently file for Chapter 13 bankruptcy. This form of debt relief offers individuals the chance to stop harassment from creditors and catch up on what they owe based on a schedule lasting three or five years. Under Chapter 13, a filer can retain their home under more manageable mortgage terms. Once the repayment period ends, someone who has satisfied the terms of the schedule can have remaining debts covered under the plan released. 

An essential part of the Chapter 13 process is assessment of a filer’s disposable income, which is conducted using information entered into Form 122C-2. This evaluation considers income sources and specific allowed expenses to arrive at a reasonable debt repayment amount. Costs that can be removed from the amount someone earns before reaching the disposable income figure include the following:

• Housing expenses — The calculation allows a standardized deduction for rent or mortgage payments, property taxes, insurance, utilities and other housing-related costs. This deduction is based on local standards set by the IRS, taking into account factors such as family size and geographic location.
• Vehicle-related costs — Separate line items exist for expenses relating to vehicle ownership and operation. The first includes loan or lease payments, while the second covers gas, repairs and insurance. The IRS has established guidelines for vehicle ownership costs based on averages, and these set amounts can be deducted as long as they’re within the allowed limits. If you own more than one vehicle, deductions are applied to each vehicle individually, within the allowed limits. This ensures that transportation needs are met without excessive deductions that might reduce the repayment amount.
• Out-of-pocket healthcare expenses — Medical costs can be a significant financial burden, and the Chapter 13 disposable income analysis accounts for this with a standardized deduction for out-of-pocket healthcare expenses, covering essentials such as prescription medications, copayments and other necessary healthcare items. Individuals 65 and older may receive an additional deduction allowance.

Food, taxes, childcare costs, life insurance premiums, phone service and other expenses can also be deducted from the amount that must be used to repay creditors. Retaining a Chapter 13 bankruptcy attorney will help you complete Form 122C-2 properly, giving you the best chance to meet obligations while maintaining a manageable lifestyle.

Jeff Field & Associates, assists Georgia clients with Chapter 13 bankruptcies and other debt relief concerns. Please call 404-381-1278 or contact us online if you’re thinking of seeking help for your financial difficulties. We have offices in Lawrenceville, Marietta, Scottdale, Douglasville, Gainesville and Bogart.