The chapter 13 disposable income test is the court’s way of ensuring that all your disposable income is going towards repaying your debts during your repayment period. Your disposable income is what remains after you’ve deducted all living expenses such as food, clothing, housing, utilities, insurance, childcare expenses, medical expenses and insurance costs and mandatory payments. As you move forward with a chapter 13 disposable income test, it’s important to consider:
- Priority and Secured Debts: Priority debts such as alimony or child support, as well as secured debts such as mortgages or car loans are the first in line for repayment.
- Non-Priority Unsecured Debts: After priority and secured debts, disposable income then goes towards any remaining non-priority unsecured debts. These would include things like credit cards or medical bills.
Median Income and the Disposable Income Test
Since non-priority unsecured debts take last priority in chapter 13 repayment, filers often wonder how much they’ll repay towards this type of debt. Repayment of non-priority unsecured debts is determined by comparing your average monthly income in relation to the median income for your state.
- If Your Income is Below the State Median Income: You don’t need to calculate disposable income and may end up paying nothing towards your non-priority, unsecured debts.
- If Your Income is Above the State Median Income: You’ll calculate your disposable income by taking your monthly income and deducting living expenses, priority debt payments, and secured payments. The remaining amount would be considered disposable income, and you’d be responsible for paying this amount to creditors each month.
If your income is above the median income, putting the remainder of your disposable income towards non-priority and unsecured debts shows the courts that you are putting forth your “best-effort” at repaying your debts.
Help Understanding the Chapter 13 Disposable Income Test
At Parker & DuFresne, we specialize in bankruptcy law and take an individualized approach to develop a plan of financial restoration tailored to every client. As a part of our commitment to bringing financial restoration to clients across Northeast Florida, we offer credit rebuilding services that are free of charge to all clients that choose Parker and DuFresne for their bankruptcy needs. We take an individualized approach, offering compassion, transparency, and dedication you can trust through the process. For more information about chapter 13 disposable income test, or to learn more about how our legal team may be of service to you, contact our offices to schedule your free consultation today!