Does Chapter 13 Take All Disposable Income?

Two male hands holding a book with the words Disposable Income written in gold letters. There are graphs spread across the table.

If you find yourself falling behind on payments, when debt has become unmanageable, Chapter 13 bankruptcy can be a powerful tool to help get your finances back under control and your life back on track. Chapter 13 can stop a foreclosure or auto repossession and allow you to pay back your missed payments over 3 to 5 years. It can stop wage garnishments and harassing collections calls and letters. It can even stop evictions and utility shutoffs. However, if you are like most people, you may not fully understand the intricacies of bankruptcy. You probably have a million questions running through your mind. Is bankruptcy right for me? How is the Chapter 13 payment plan calculated? And, of course, is all disposable income – that money left over after factoring in mandatory payments and approved monthly expenses – allocated to pay down debt in a Chapter 13 payment plan?

We will address these questions and more throughout the course of this article.

Calculating Your Chapter 13 Payment Plan and What Happens to Your Disposable Income

After filing your Chapter 13 payment plan, a bankruptcy trustee is appointed to administer the case. The trustee reviews the proposed plan with creditors to ensure that it complies with requirements before it is confirmed (approved) by the court and finalized. In many cases, the debtor can pay their unsecured debts (credit cards and personal loans) pennies on the dollar. Other debts (secured debts) must be paid back in full over the 3-5 year payment plan.

When calculating just how much you will be required to pay unsecured creditors, a few factors come into play.

  • The minimum amount you must pay unsecured creditors is equal to the amount these creditors would have received had you filed for Chapter 7 bankruptcy. You see, in Chapter 7, the trustee sells all non-exempt property (assets that cannot be protected with a bankruptcy exemption). The funds from selling these assets is used to pay back creditors in order of priority as outlined in the Bankruptcy Code. .
  • Your disposable income also plays a pivotal role. Your monthly disposable income is the minimum you’ll pay to your non-priority unsecured creditors throughout the course of your Chapter 13 payment plan. Your disposable income is the amount that remains after deducting allowed living expenses and mandatory payments. And the calculation is different depending on whether your income is above or below the median income in your state.

Calculating Disposable Income in Maryland

You must show that you are making your best effort to pay unsecured creditors, which means allocating your disposable income to these debts. To calculate your disposable income, you will be required to fill out Form 22C – Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income. If your income is below median in Maryland for the six months preceding your bankruptcy, you will not be required to fill out the entire form and will likely pay little or nothing to non-priority unsecured creditors. However, if your income is above median in Maryland for the six months preceding your bankruptcy, you must complete the form to determine whether or not you have enough disposable income to pay back some of your non-priority unsecured debts.

Consult a Maryland Bankruptcy Attorney to Determine Your Monthly Payment

Chapter 13 bankruptcy is a complicated process. If you want a more exact estimate than you can reasonably calculate yourself, it is a good idea to consult a bankruptcy attorney, like Steiner Law Group. We can help you understand the bankruptcy process, evaluate your options, and let you know how much of your disposable income will need to be allocated to pay non-priority unsecured creditors. Steiner Law Group is a boutique law firm in Maryland that assists individuals and businesses with bankruptcy and financial restructuring services. We have helped hundreds of individuals, families and businesses discharge millions in debt.

If you have more questions about Chapter 13 bankruptcy, please schedule a risk free consultation or contact Steiner Law Group, LLC a Baltimore, Maryland law firm at (410) 670-7060 to learn more about bankruptcy options.

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About Eric Steiner, Esquire

Mr. Steiner graduated from the University of Michigan Law School in 2006. Since then, he has focused his practice on bankruptcy, real estate, commercial and consumer collections, including representing the third largest lender in the greater Baltimore area.