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What is "disposable income" in a Chapter 13?

Families in Kentucky who find themselves in financial trouble may elect to file a Chapter 13 bankruptcy, opting for a three-year to five-year repayment plan in lieu of turning over non-exempt property and dealing with their debts all at once. For those contemplating this type of bankruptcy, it may be helpful to have some understanding of "disposable income" and how it is figured. However, as with other legal concepts, detailed questions about one's disposable income are best raised with an experienced bankruptcy attorney.

Basically, in order to get a repayment plan approved, a family is going to be expected to commit all of their "disposable income" to paying down their debts. The law defines "disposable income" as the amount of money a debtor makes, child support excluded, minus whatever the debtor is spending to provide reasonable support to themselves and their families. If a debtor is a business owner, that person may also deduct business expenses. Additionally, debtors are allowed to contribute up to 15 percent of their income to charity and may take a deduction from their disposable income to that extent.

While figuring disposable income can be straightforward in some cases, in other cases a lot of disputes can arise. For example, an expense that a debtor might consider to be a basic expense might be perceived by a creditor or even the bankruptcy trustee as an unnecessary luxury. These sorts of questions are important since, as mentioned, they will ultimately determine how much a debtor will need pay each month as part of the Chapter 13 repayment plan.

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