San Diego Bankruptcy Lawyer | Disposable Income

Disposable income is defined as “current monthly income received by the debtor . . . less amounts reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor, or for a domestic support obligation, that first becomes payable after the date the petition is filed.”  11 U.S.C. § 1325(b)(2).  This definition requires further clarification of two phrases: “current monthly income” and “amounts reasonably necessary to be expended.”

Current monthly income is defined as “the average monthly income from all sources that the debtor receives . . . without regard to whether such income is taxable income, derived during the 6-month period ending on . . . the last day of the calendar month immediately preceding the date of the commencement of the case . . . .”  11 U.S.C. § 101(10A).  In exceptional cases, however, the Supreme Court has ruled in Hamilton v. Lanning that the debtor may take into account foreseeable changes in a their income or expenses when calculating disposable income.

The second phrase–amounts reasonably necessary to be expended–is a little easier.  The amount reasonably necessary for the debtor’s maintenance and support is dependent upon the debtor’s current monthly income.  If the debtor’s current monthly income is equal to or below the median family income of the applicable state, the debtor would use Schedule J to determine which of the debtor’s current expenses were reasonable.  If the debtor’s current monthly income is greater than the median family income for the state, the debtor would look to Form B22C in a Chapter 13 or B22A in a Chapter 7 to determine the debtor’s expenses for maintenance and support.  11 U.S.C. § 1325(b)(3).  The Supreme Court in Ransom v. FIA Card Services has held that certain expenses on form B22A and B22C may not be allowable unless the debtor can show they actually incur that type of expense. In Ransom the Court held that a car ownership expense for the cost of a car was not permissible unless the debtor actually owed money on a vehicle.