Filing for bankruptcy can be a frightening experience, especially if you are concerned it could change your day-to-day living. Though there are many things you will need to give up, at least temporarily, and many things that might change once you file for bankruptcy, these changes are worth it for many. Bankruptcy allows for a fresh financial start in life, and though it requires some sacrifices, it does not mean your life as you know it is over.
What can you expect after you file for bankruptcy and how does it affect your daily spending?
The most accurate answer to this question is based on the type of bankruptcy you choose. When you file for Chapter 13 bankruptcy, your disposable income determines how much you pay creditors. For Chapter 7 bankruptcy, your disposable income is the determining factor in whether or not you even qualify to file.
Bankruptcy courts use something called a Means Test to determine the various details of your bankruptcy. If gross annual household income is at or above the median in your state, your disposable income is used to determine if you qualify to file for Chapter 7 bankruptcy. If you are able to pay back at least a portion of your debt with your disposable income, you might not qualify for Chapter 7. Don’t panic, though. Bankruptcy might still be an option for you, but you will need to apply for Chapter 13 and commit to a repayment plan.
In some instances, even if your current calculations qualify you for Chapter 7, your attorney might advise against it. This is because the bankruptcy court considers your future situation more than your past. If adjustment to your expenses are made during the bankruptcy (for instance, your mortgage payments are altered or eliminated), your disposable income amount will differ. Think in terms of what your disposable income and expenses are expected to be, not what they are while you are in the midst of your current financial crisis.
How is Disposable Income Calculated?
There are several different ways to calculate disposable income and different people consider different things “disposable.” However, for the purposes of applying for bankruptcy and using the means test, your disposable income is your gross income minus your expenses and allowable deductions.
For more information about view the Justice.gov Means Test.
If you opt for a Chapter 13 bankruptcy filing, you will be required to pay back at least some of your debt under the plan. The amount you are required to pay back is your disposable income amount over the course of the bankruptcy. Any debt that remains beyond that will be discharged by the court. This assumes there is not an issue with un-exempt assets, which will impact the amount you are required to pay back to creditors. If there is an un-exempt asset, in order to keep that asset you would have to pay back the un-exempt value over the course of your plan.
Disposable Income and Chapter 13
So will you have disposable income if you file for bankruptcy? If you are filing for Chapter 13, the answer is no, not for the duration of the process. The court will calculate your necessary expenses (food, utilities, etc.) and that will be the amount of money you retain once your payment plan obligations are met. If you were living beyond your means prior to filing, this will likely change your day-to-day life, but in the end, bankruptcy ensures you get a fresh start. Anything you sacrifice during the bankruptcy process will pay off in the long run when you get to enjoy new financial opportunities.
To learn more about what you can do to prepare for your upcoming bankruptcy in 2015, contact the law office of Frank J. LaPerch, PC at 845.942.5500.