What Is Disposable Income in Chapter 13 Bankruptcy?

Disposable income in Chapter 13 bankruptcy is what remains of your average monthly earnings after you subtract the living expenses the Bankruptcy Code allows, and that leftover figure sets how much you pay unsecured creditors each month for the three to five years of your repayment plan. The definition sits in 11 U.S.C. § 1325(b), and courts apply it strictly: if a trustee or an unsecured creditor objects, the judge cannot confirm your plan unless every dollar of your projected disposable income is committed to it.¹ Getting this number right controls what creditors receive, how long you pay, and whether your case gets confirmed at all.

The Income Side of the Calculation

The starting point is “current monthly income,” which is your average monthly income from all sources across the six full calendar months before you file. It is not just wages. It sweeps in salary, commissions, business income, rental income, interest and dividends, and regular contributions from other members of your household. If a spouse lives with you but is not filing jointly, their income is counted too, though expenses attributable solely to the non-filing spouse can be subtracted later.²

Social Security benefits are the big exclusion. The Code carves them out of current monthly income, so they do not feed into the disposable income figure and cannot be pulled into your plan payment.³ Disability payments and foster care payments made for a dependent child are excluded as well.¹

Accuracy here matters more than it looks. The income total flows into every later step, and intentional omissions can get a case dismissed for bad faith.

Which Expenses You Can Deduct

Once income is set, you subtract allowed expenses. How those expenses are determined depends entirely on whether your annualized income falls above or below the state median for a household your size. That split is the fork that shapes everything else.

If Your Income Is Above the State Median

When your annualized current monthly income is above your state’s median family income, the Code requires your deductions to track the IRS Collection Financial Standards rather than what you actually spend.¹ These are the same figures the IRS uses when working with taxpayers who owe back taxes.

The IRS National Standards cover five categories of necessary spending: food, housekeeping supplies, apparel, personal care products, and a miscellaneous allowance. You take the full standard for your household size without having to document your actual outlays. A single person receives a total national standard of $839 per month across those categories; a four-person household receives $2,129.⁴ Out-of-pocket healthcare is allowed per person under a separate national standard.

Housing, utilities, and transportation sit under the IRS Local Standards and vary by geography. Housing is set at the county level using Census data; transportation is split between ownership costs and regional operating costs.⁵ In most cases you get the lesser of your actual cost or the local standard.

If Your Income Is At or Below the Median

Below-median filers are evaluated more on actual reasonable and necessary expenses, with less rigid reliance on the IRS caps. You still have to document what you spend, and a judge can disallow anything that looks inflated. The flexibility can help or hurt depending on your real spending.

Deductions Available to Everyone

Several categories come off the top regardless of where you fall on the median line:

Federal, state, and local income taxes, plus payroll taxes like Social Security and Medicare withholding.
Health insurance premiums, disability insurance, and similar coverage.
Court-ordered child support and alimony that becomes payable after you file.
Childcare and certain education costs reasonably necessary for a dependent child.
Charitable contributions to qualifying religious or charitable organizations, capped at 15% of your gross income for the year the contribution is made.¹
Mandatory employer-required retirement contributions.

The charitable contribution rule surprises some filers. Congress wrote the 15% cap in so that debtors who tithe or donate regularly do not have to stop, but anything above 15% of gross income will not reduce your disposable income.

Running the Numbers on Form 122C-2

The figures come together on Official Form 122C-2, “Chapter 13 Calculation of Your Disposable Income.” You first complete Form 122C-1, which establishes current monthly income and your applicable commitment period. Form 122C-2 then runs through each expense category line by line to produce the final monthly surplus.²

The concept is simple: income minus allowed expenses equals projected disposable income. In practice, above-median filers face a much more rigid process because the IRS standards dictate most deductions. Below-median filers have more room to argue actual costs, but they also carry more burden to prove those costs are reasonable.

Courts treat the projected disposable income figure as the floor, not the ceiling, of what you pay. On an objection, the judge must verify that every dollar of it reaches unsecured creditors over the life of the plan.¹

How the Result Shapes Your Repayment Plan

Projected disposable income controls two things: the size of your monthly payment and the length of the plan. The applicable commitment period is three years if your income is below the state median for your household size and five years if it is above.⁶ For above-median debtors, the monthly surplus from Form 122C-2 multiplied by 60 is the total that unsecured creditors must receive.

Payments go to a court-appointed trustee, who distributes the money to creditors in the priority order the Code lays out.⁶ The trustee also takes a fee from each payment, capped by federal law at 5% of all payments under the plan.⁷ Your plan payment has to cover that fee on top of what creditors receive, so what leaves your pocket each month is slightly higher than the disposable income figure alone.

Fall behind, and the court can dismiss the case or convert it to Chapter 7, where nonexempt assets are sold off instead.⁶ Missed payments are the most common reason Chapter 13 cases fail.

Tax Refunds, Inheritances, and Other Windfalls

Your obligation does not end at the regular monthly payment. Most trustees treat tax refunds as disposable income that belongs in the plan, since the Code already requires you to commit all projected disposable income and a sizable refund means more was available than the plan captured. Expect to turn refunds over to the trustee unless your plan already pays unsecured creditors in full or the court lets you keep the money for a specific necessary expense. Some districts have standing orders that spell out exactly how much of a refund you must hand over.

Inheritances work differently. Under the 180-day rule, if you become entitled to an inheritance, life insurance payout, or property settlement within 180 days after filing, that asset enters your bankruptcy estate. In Chapter 13, that usually increases what you repay over the life of the plan, even when the funds themselves are not seized outright. Failing to disclose an inheritance can cost you your discharge.

When Your Income Changes Mid-Plan

A Chapter 13 plan runs for years, and finances rarely stay still. Job changes, raises, layoffs, new medical costs, and family changes can all shift the picture. Report any significant change in income or necessary expenses to your attorney, who may recommend amending your schedules or modifying the plan.⁸

Modification runs in both directions. Lose your job or face a medical crisis, and you can ask the court to lower payments. Get a raise and stay quiet, and a trustee or creditor who notices can move to raise them. Trustees in many districts review tax returns annually for exactly this reason. Staying transparent across the life of the plan is what gets you to discharge.

1
Office of the Law Revision Counsel. 11 U.S. Code 1325 – Confirmation of Plan
2
United States Courts. Chapter 13 Calculation of Your Disposable Income
3
American Bankruptcy Institute. Chapter 13 Debtor Not Required to Include Monthly Social Security Benefits in Chapter 13 Plan as Projected Disposable Income
4
Internal Revenue Service. National Standards: Food, Clothing and Other Items
5
Internal Revenue Service. Collection Financial Standards
6
United States Courts. Chapter 13 – Bankruptcy Basics
7
Office of the Law Revision Counsel. 11 USC 326 – Limitation on Compensation of Trustee
8
American Bankruptcy Institute. Changes in Circumstances While in a Chapter 13 Bankruptcy