When you’re overwhelmed by debt, bankruptcy offers a legal path to financial relief. But whether you can file under Chapter 7 or must file under Chapter 13 often comes down to one key financial metric: disposable income.
At Simon Fitzgerald LLC—Louisiana’s oldest bankruptcy law firm with offices serving Shreveport, Monroe, and beyond—we guide you through this process using decades of local experience. Here’s what you need to know about how disposable income is calculated and why it plays such a critical role.
What Is Disposable Income in Bankruptcy?
Disposable income is the amount of money left over each month after subtracting essential living expenses from your income. These expenses include housing, food, transportation, healthcare, and other basic costs.
In bankruptcy, disposable income isn’t just a financial concept—it’s a gatekeeper. It helps determine:
- Whether you qualify for Chapter 7 (liquidation)
- How much you pay in a Chapter 13 repayment plan
Chapter 7 Bankruptcy: Do You Qualify Based on Disposable Income?
To file Chapter 7 in Louisiana, you must pass a means test, which includes two steps:
Step 1: Median Income Comparison
Your average monthly income is compared to Louisiana’s median income for your household size. If your income is below the median, you qualify for Chapter 7.
Step 2: Disposable Income Analysis
If your income is above the median, your disposable income is calculated using IRS Standard Allowances for living expenses. This determines whether your remaining income is low enough to qualify for Chapter 7—or if a presumption of abuse arises.
🔍 Understanding Presumption of Abuse in 2025
If your disposable income is high enough that you could pay a portion of your unsecured debts, the court may assume you’re “abusing” Chapter 7 and may redirect your case to Chapter 13.
As of April 1, 2024, the current means test thresholds published by the U.S. Trustee Program are:
- $151.25/month (or $9,075 over 60 months):
→ No presumption of abuse. Chapter 7 is likely available. - $252.50/month (or $15,150 over 60 months):
→ Presumption of abuse applies if you could repay at least 25% of unsecured debt. - Between those amounts:
→ The court will evaluate your total debts, expenses, and financial situation more closely.
These numbers change every three years, so current legal guidance is crucial.
Allowable Expenses: What Counts Toward Your Budget?
Whether you’re pursuing Chapter 7 or Chapter 13, you must disclose all monthly expenses. The court uses IRS national and local standards to determine what qualifies as reasonable, including:
- Rent or mortgage
- Utilities and internet
- Groceries and clothing
- Transportation and insurance
- Healthcare
- Childcare, taxes, and required payments
Maintaining records—like pay stubs, receipts, and utility bills—helps validate these expenses and protect your eligibility.
Chapter 13 Bankruptcy: Using Disposable Income to Repay Debt
If you don’t qualify for Chapter 7—or choose to keep certain assets—Chapter 13 lets you restructure and repay your debts over 3 to 5 years.
Here, your disposable income becomes your monthly payment baseline. Whatever money remains after allowable expenses must go toward paying unsecured creditors.
Your total payment plan is affected by:
- Your monthly disposable income
- The value of non-exempt assets
- The amount and type of debt you owe
The court and Chapter 13 Trustee in the Western District of Louisiana will review your plan to ensure compliance with all rules and fair repayment to creditors.
Why This Matters to You
Understanding disposable income is crucial because:
- It affects which bankruptcy chapter you qualify for.
- It determines how much relief you can receive—or how much you’ll have to repay.
- It could protect your home, car, or other vital assets.
If your disposable income is close to the threshold, working with a knowledgeable local attorney is essential. Even small income fluctuations or undocumented expenses can change the outcome of your case.
Need Help Understanding Your Disposable Income? Let’s Talk
Simon Fitzgerald LLC has helped more than 25,000 Louisianans regain financial stability. Let us help you evaluate your disposable income, explore your bankruptcy options, and determine the right path forward.
