Simply put, Disposable Income (or DI), is the amount of net income remaining after all regular monthly expenses are deducted. The size of this amount can determine whether you file a chapter 7 or 13 bankruptcy. Getting it wrong can cause you problems if you file under the wrong chapter.
This figure can be calculated in one of two ways:
Disposable Income in Means Testing
If your gross monthly income according to the means test is over the median income for your family in New Jersey, then that test is used to see if you have excess income that can fund a chapter 13 plan of repayment.
If the DI amount is a positive number, and a significant amount (which changes with inflation), then a presumption of abuse will arise that could prevent you from filing a chapter 7. In a chapter 13, it becomes the amount that determines how much you would have to pay into a plan over five (5) years.
Disposable Income in Cash Flow
This is a calculation that simply takes your total monthly net income and deducts all monthly expenses that are reasonable and necessary for your support or that of a dependent. The amount of money left over, if any, is the DI.
Even if there is no presumption of bad faith under means testing, there can still be a finding of bad faith by the court if you file a chapter 7 with a significant amount of disposable income available to pay creditors.
So What Do I Do?
Determining this amount (under either analysis) is not as simple as it sounds, and can cause a great deal of problems and stress for you if you get it wrong. As such, you should have a lawyer for your bankruptcy.
If you live in Burlington, Camden, Gloucester, Salem or Cumberland County, are considering bankruptcy, and are ready to take action, call my office at 856-432-4113 or contact me through this site to schedule a free consultation in my Woodbury office.
If you have more questions about bankruptcy, then download my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey.
Not sure if bankruptcy is right for you? Take the quiz to the right to find out more!
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