Disposable Income Law and Legal Definition

Disposable income is generally defined as income after federal and local income taxes. In bankruptcy law, disposable income is defined as income not reasonable necessary for the maintenance or support of the debtor or dependents. If the debtor operates a business, disposable income is defined as excluding those amounts which are necessary for the payment of ordinary operating expenses. The precise definition varies depending on applicable laws. The following is an example of a statute dealing with disposable income:

(1) Disposable income is adjusted gross income plus the following to the extent they were deducted or not included in adjusted gross income:


(a) Capital gains, except gain from the sale of a principal residence to the extent such gain is reinvested in a different principal residence, including reinvestment in a life estate or lease for life in a retirement residence;
(b) Amounts deducted for loss;
(c) Amounts deducted for depreciation;
(d) Pension and annuity receipts;
(e) Military pay and benefits other than attendant-care and medical-aid payments;
(f) Veterans benefits other than attendant-care and medical-aid payments;
(g) Federal Social Security Act and railroad retirement benefits;
(h) Dividend receipts;
(i) Interest received on state and municipal bonds.