Projected Disposable Income -- Section 1191(c)(2)

The Calculation

Projected disposable income under Section 1191(c)(2) is calculated as:

This amount must be committed to plan payments for the 3-to-5-year plan period.

Business Expenses

One of the key advantages of Subchapter V is the full recognition of business expenses. Deductible expenses include:

• Rent and occupancy costs
• Employee wages and benefits
• Inventory and supplies
• Insurance (business and health)
• Vehicle and equipment costs
• Professional fees (accounting, legal, industry-specific)
• Reasonable owner compensation -- the debtor can pay themselves a market-rate salary

Personal Expenses

For individual debtors, personal expenses that are "reasonably necessary for maintenance or support" are also deductible. These include:

• Housing costs (rent or mortgage)
• Food and clothing
• Transportation
• Health care
• Insurance
• Child care
• Education expenses for dependents

Unlike Chapter 13, where many of these expenses are capped by IRS standard allowances, Subchapter V uses actual reasonable amounts. A debtor in an expensive housing market can claim actual housing costs rather than being limited to a national standard.

Projecting Future Income

The income figure used is projected income -- not historical income. Courts look forward, considering:

• Historical business performance (as a baseline)
• Current trends and contracts
• Seasonal variations
• Planned changes to the business (expansion, contraction, new services)
• Economic conditions affecting the industry

The debtor bears the burden of providing credible projections. Unrealistically low income projections will be rejected by the court. Conversely, overly optimistic projections may set the debtor up for failure to make plan payments.

See also: Cramdown requirements | Means test comparison