How Long Will My Chapter 13 Repayment Plan Be?
You have probably heard that a Chapter 13 bankruptcy repayment plan lasts between 3 and 5 years. But which is it, and how do you know which time period will apply to your case?
The answer of course matters, because everyone would prefer to pay as little as possible for as short of a time period as possible. But the ultimate answer isn’t necessarily up to you; it will be up to whatever the bankruptcy code says the time period should or will be.
The Means Test Matters
The good news is that the less money you have, the more options you have (although unlike Chapter 7 bankruptcy, with Chapter 13, it is possible to make too little money).
Here is where Chapter 13 relates to the means test that you’d ordinarily need to pass, in order to qualify for a Chapter 7 bankruptcy. As a general rule, if you’d pass the means test, and thus qualify for a Chapter 7, you can pay off your Chapter 13 plan in three years.
If you wouldn’t qualify to file for Chapter 7 (usually because you earn too much money), you will need to pay off our Chapter 13 bankruptcy over 5 years.
Flexibility in Chapter 13
Chapter 13 gives you flexibility. You may find it easier, and payments to be less, to make payments over five, instead of three years. If you do qualify for a three year payment plan, you don’t have to pay off whatever you would owe in three years—you have the option of extending our repayment plan over five years.
This can also help you qualify for a Chapter 13 plan, whereas you may ordinarily have problems doing so.
Over a five year plan, your payments are generally less, meaning you will have an easier time showing the court that you should qualify for a Chapter 13 and have your proposed Chapter 13 bankruptcy plan approved.
For debtors who have large amounts to pay off or catch up on—say, for example, you have back owed mortgage payments, which have accrued—it may be easier to pay those back owed amounts over five, rather than three years.
No matter whether you qualify for a three or five year plan, you can never go beyond five years. If for some reason you can’t qualify for a five year plan, you’ll have to opt for either a Chapter 7 or a personal Chapter 11, depending on your individual circumstances.
Passing the Means Test
To see if you can get a three year plan, the court will look at your income. Your income is calculated as your average over the previous six months prior to the filing. You then will compare your income to the median income in your state, with some adjustments for the size of your household.