Projected Disposable Income in Subchapter V: How Payments Are Calculated
- Melissa A. Youngman
- May 6
- 7 min read
Melissa Youngman, PA represents businesses in Chapter 11 and Subchapter V cases before the United States Bankruptcy Court for the Middle District of Florida, including the Orlando, Jacksonville, Tampa, and Fort Myers divisions, with a primary practice footprint in Orange, Seminole, Osceola, Volusia, Lake, and Brevard counties.
When a Subchapter V debtor cannot secure acceptance from every impaired class of creditors, the nonconsensual confirmation route under § 1191(b) becomes the path forward. That path has a price, and the price is defined by statute: the debtor must commit all of its projected disposable income over a period of three to five years to plan payments. The concept of projected disposable income (PDI) is therefore not a bookkeeping formality. It is the central financial question of every nonconsensual Subchapter V plan, and the answer drives the size, duration, and feasibility of the reorganization.
This post works through the statutory definition in § 1191(d), the income and expense components that make up the calculation, the tax obligation that practitioners and business owners frequently omit from their projections, and a concrete hypothetical built around a Central Florida service business. Whether you are a business owner in Winter Park, Maitland, or anywhere else in the Middle District of Florida evaluating Subchapter V as a reorganization option, understanding how plan payments are calculated is foundational to evaluating whether the tool fits your situation.
What § 1191(d) Establishes
Section 1191(c) sets the confirmation standard for a nonconsensual Subchapter V plan. Among its requirements, the plan must provide that all of the debtor's projected disposable income to be received in the applicable commitment period will be applied to make payments under the plan, or that the value of the property to be distributed is not less than the debtor's projected disposable income for that period.
Section 1191(d) then defines the term. Projected disposable income means disposable income that is projected to be received beginning on the date the first payment is due under the plan and continuing through the commitment period. That period is three years by default, and no longer than five years as the court may fix for cause.
The definition splits by debtor type. For an individual Subchapter V debtor, "disposable income" carries the same meaning as in § 1325(b)(2) of the Bankruptcy Code (the Chapter 13 definition applied in the business-activity context). For a non-individual debtor such as a corporation, LLC, or partnership, disposable income means the debtor's current monthly income (projected over the plan period) minus amounts reasonably necessary for the continuation, preservation, and operation of the debtor's business.
This business-entity formulation is the operative definition for the great majority of Subchapter V cases filed in the Middle District of Florida, which involve LLCs, closely held corporations, and professional associations rather than sole proprietorships structured as individuals.
The Income Side: Projecting Current Monthly Income
The income component starts with the debtor's current monthly income. The Bankruptcy Code's general definition at § 101(10A) uses an average of the debtor's monthly income from all sources received during the six full calendar months before the petition date. That backward-looking average provides the baseline. The court then considers whether the projection forward through the commitment period will be higher or lower than the historical average, accounting for known changes in the debtor's business, its contracts, its customer base, and market conditions.
A business that recently lost a major contract projects lower revenue than its trailing six-month average. A seasonal business in Central Florida that files during the off-season may project higher revenue once peak season resumes. The projection is a judgment, and it is frequently the most contested number in a disputed Subchapter V confirmation hearing.
What the income component does not include: transfers from business affiliates that have no economic substance, one-time asset sale proceeds that will not recur, and amounts expressly excluded by statute.
The Expense Side: What the Code Allows
Amounts deducted from income are those reasonably necessary for the continuation, preservation, and operation of the business. The statute does not provide a line-item list, which means the debtor must build the expense budget from first principles and be prepared to defend each line.
Ordinary operating costs generally survive scrutiny: rent and occupancy expenses, payroll and payroll taxes, utilities, insurance premiums, inventory and cost of goods, debt service on secured obligations, and professional fees incurred in the ordinary course. A landscaping company in Oviedo would include equipment maintenance and fuel; a restaurant group in Kissimmee would include food costs, labor, and licensing.
What courts have generally questioned or disallowed: owner distributions above a reasonable salary for the owner's actual services to the business; capital expenditures for expansion rather than maintenance or replacement; and payments to insiders that are not arm's-length compensation.
The expense budget must be supportable. In a Subchapter V case, the court-appointed trustee's role includes facilitating a consensual plan, and the trustee will scrutinize the PDI calculation. A creditor or the U.S. Trustee may also object to expenses that appear inflated, non-operational, or structured to minimize the payment to unsecured creditors.
The Tax Effect: An Adjustment Often Overlooked
One component of the expense deduction that business owners and their advisors underestimate is the income tax obligation generated by the debtor's projected income during the plan period.
If the debtor is profitable enough to generate federal income tax liability, or Florida corporate income tax liability, those obligations reduce disposable income. Omitting them overstates PDI, which in turn inflates the required plan payment. An overstated PDI produces a plan that appears solvent on paper but fails in practice once the first tax obligation arrives.
For a profitable small business the effect can be material. A debtor projecting $25,000 per month in net operating revenue must account for the applicable tax wedge before arriving at the disposable amount available for plan payments. For C-corporations the federal obligation is calculated at the corporate rate. For pass-through entities such as S-corporations and single-member LLCs, the tax obligation flows to the individual owner, which raises a plan-design question: whether the owner's individual tax liability on business income constitutes an amount "reasonably necessary" for the continuation of the business.
A Hypothetical Calculation
Consider a hypothetical Orlando-area commercial landscaping LLC. The figures below are illustrative only and are not drawn from any actual case.
Gross revenue: $80,000 per month Cost of goods and direct labor: $42,000 Gross profit: $38,000 Operating overhead (rent, insurance, vehicles, administrative): $18,000 Owner's reasonable compensation for services: $8,000 Monthly debt service on secured equipment loans: $3,500 Estimated income tax provision: $2,200 Total projected monthly expenses: $73,700 Projected disposable income per month: $6,300
Over a three-year plan, the total PDI commitment would be approximately $226,800. That is the floor the plan must commit to paying creditors in a nonconsensual confirmation, assuming the numbers remain stable and no adjustments are warranted.
Every line in that calculation is subject to challenge. The trustee, a secured lender, or a dissenting unsecured creditor can contest the revenue projection, the overhead allocation, the owner compensation figure, and the tax provision. The confirmation hearing on PDI can become, in practical terms, a trial on the business's financial model.
Consensual and Nonconsensual Plans: Why the Stakes Differ
In a consensual plan under § 1191(a), PDI matters, but it matters in a different way. The consensual plan is confirmed under the general § 1129 standards with the Subchapter V modifications. PDI is still relevant as the framework for creditor negotiations, because creditors want to understand what income the debtor can commit, but the statutory requirement to commit all PDI to plan payments applies only in the nonconsensual track under § 1191(b) and (c).
A debtor aiming for a consensual plan has an incentive to be transparent about PDI early in the case. That transparency forms the basis for creditor negotiations and often accelerates settlement. In the Middle District of Florida, the United States Trustee typically appoints an unsecured creditors' committee only in larger, more complex Chapter 11 cases with a sizable creditor class. For most small and mid-size business reorganizations filed in this district, no committee is formed, and unsecured creditors act individually or not at all. In a Subchapter V case, § 1181(b) further limits creditor committees to cases where a court orders one for cause. The result is that PDI negotiations in most MDFL Subchapter V cases happen directly between the debtor's counsel, the Subchapter V trustee, and individual creditors, without the intermediary of a committee and its professionals.
An accurate, well-documented PDI analysis is often the fastest path to a consensual plan.
Central Florida: Building the Model Before Filing
For businesses headquartered in Winter Park, Orlando, Maitland, Lake Mary, Kissimmee, Clermont, or elsewhere in Central Florida, Subchapter V cases are filed in the Orlando Division of the United States Bankruptcy Court for the Middle District of Florida. The PDI analysis is presented at the § 1188 status conference, held within 60 days of the petition date, and underpins the plan that is due within 90 days of filing.
The court and the Subchapter V trustee will both scrutinize the numbers from the start. Building a defensible PDI model is pre-petition work. The earlier counsel and the debtor stress-test the income and expense projections, the more accurate the plan will be, and the more likely it is to achieve the consensual confirmation that keeps the case moving efficiently.
Melissa Youngman, PA represents businesses in Chapter 11 and Subchapter V cases throughout the Middle District of Florida. For more on plan confirmation standards and the nonconsensual cramdown track, see our guide on Subchapter V cramdown.
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