Disposable Income and Utah Bankruptcy

You may hear the term ‘disposable income’ thrown around by your Draper bankruptcy attorney during the course of your preparation and filing for bankruptcy. It is potentially confusing; if you had disposable income, why would you file for bankruptcy in the first place? However, disposable income is not simply extra money, and even with a small amount of it, you may need to continue with your bankruptcy.

The Term

Once you have paid for monthly essentials, such as rent, utilities, groceries, school registration for children, and other such things, the money you have left is called disposable income. Remember that the essentials do not include any debt you may have incurred and accumulated; these are the bare minimum expenses you must cover to stay alive and in good health. Usually, one can use disposable income to repay debts, but if you are in too much debt to afford that, bankruptcy is your most logical course of action. The type, frequency, and amount of disposable income you have will play a large part in which type of bankruptcy is right for you.

Chapter 7

A person, couple, or family with little to no disposable income, a greatly fluctuating amount of income, or no income at all will probably be best served by a Chapter 7 bankruptcy. After all, if you can’t afford to pay for your essentials, you can’t afford to pay your debts as well. This type of bankruptcy largely ignores the fluctuations in your income and the amount of debt you have, as you will not need to use your disposable income to pay off any debts other than student loans and debts to the IRS; instead, you will liquidate most of your assets in return for near-complete debt erasure.

Chapter 13

This type of bankruptcy concerns the amount of disposable income to which you have access. Instead of debt erasure, Chapter 13 bankruptcy requires a single, affordable monthly payment to a trustee, who will then distribute the payment among your secured creditors. Fortunately, the amount of this monthly payment is not set in stone; instead, it is directly based on your disposable income. Once you are in bankruptcy, you will have enough money to cover your essentials in addition to reducing the amount of debt you owe. Once your bankruptcy is finished, unless you have additional debts to the IRS or student loans, you will have your disposable income to use as you see fit.

"I was worried I would lose everything. Brian helped me sort things out and restored my life. I don't know where I'd be without him!"

-Sue H. Ogden, UT