The Meaning of Projected Disposable Income in Chapter 13 Bankruptcy
Those who choose to file Chapter 13 bankruptcy must participate in and complete a three to five year plan in order to achieve forgiveness of any remaining unsecured debt. Although the plan may have some flexibility, and the way a debtor times their bankruptcy will have a great impact on the plan, there are rules regarding how much each creditor must be paid in a Chapter 13 plan. One such rule is that a debtor is required to commit their projected disposable income toward repayment of their creditors. What is projected disposable income (PDI)?
Projected disposable income must be calculated so that the court can determine how much a debtor should pay every month toward his or her debt. The idea is that the court needs to find out what your income will be minus expenses during the course of your plan, and that amount is the amount you can afford to pay.
There are actually several different approaches to calculating the debtor’s PDI: the forward-looking approach, and the mechanical or backward-looking approach.
In the mechanical approach, the debtor’s monthly income during the 6 months preceeding their bankruptcy filing is averaged, and their average expenses are deducted to create the PDI. It does not take into account any possible changes or even likely changes.
In the forward-looking approach, which is supported by the language of the Bankruptcy Code when it specifies “projected", courts are encouraged to take into account future changes in income. However, the Supreme Court has specified that only income and expense changes that are known or virtually certain to occur should be considered in altering the PDI of a debtor. This means that, for the most part, past income is the main factor in determining PDI even in a forward-looking approach.
Speak with a qualified local bankruptcy attorney before deciding if bankruptcy is the right decision for your situation.