In a Chapter 13 bankruptcy, is the payment required to repay creditors based upon available income?

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In a Chapter 13 bankruptcy, is the payment required to repay creditors based upon available income?

If so, wouldn’t it be wiser to keep our expensive home, thus leaving less available for payments? We had originally thought of dumping the home to have more disposable income available, but wouldn’t that disposable income be used up making higher payments to creditors?

Asked on August 13, 2011 Michigan

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

You are trying to think strategically, which is good; however, you are--very understandably--misunderstanding what is meant by "disposable income" in this case. In ordinary usage, disposable income is income left after all the necessary expenses of life, including mortgage (or rent) and utilities. For bankruptcy purposes, however, disposable income is income left after legally mandated deductions, such as FICA. Only deductions required by law are taken out for purposes of determining what is disposable income--and your mortgage is NOT required by law, since it's your choice to live in a big home with a large mortgage. So you cannot use a large mortgage, which enables you to live in a large home, as a way to pay creditors less, unfortunately. (Otherwise, *everyone* would buy the biggest home possible before filing, after all.)


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