How Long Will My Chapter 13 Plan Last?

In Chapter 13 bankruptcy, you propose a creditor repayment plan that lasts between three and five years. The plan length will depend on two factors:

• your monthly income, and
• how much time you need to pay the required amount.

While calculating a Chapter 13 repayment plan can be tricky, learning the basics will help you understand what to expect.

Your Monthly Income and the Chapter 13 Plan Length

Filing for bankruptcy under Chapter 13 requires regular income. You have to be able to make required plan payments from wages and commissions earned either in the ordinary course of a job or through self-employment.

Why does this matter? The commitment period for your plan—or plan duration—is determined by comparing your monthly earnings to the median family income in the state where you live.

Here's how it works.

• You'll pay into a three-year plan if you earn less than the median income in your state.
• The plan increases to five years if you earn more than the state median income.

Five years is the maximum length of any Chapter 13 repayment plan.

You can reduce the commitment period for your Chapter 13 plan if you can pay all of your unsecured debt (such as credit card balances, medical bills, and personal loans) sooner. Most Chapter 13 debtors, however, earn too little and owe too much to make required plan payments in less than five years.

You Can Choose a Five-Year Chapter 13 Plan

Even if you qualify for a three-year plan, you might opt for a five-year plan instead. There are several reasons why debtors who could proceed under a 36-month plan would do this:

• Catch up on arrearages on a home or car loan. Often a Chapter 13 debtor's primary asset is a home or motor vehicle, and many people file bankruptcy after defaulting on a home mortgage or motor vehicle loan. One of the benefits of Chapter 13 that isn't available in Chapter 7 is bringing home mortgage and motor vehicle loans current through the repayment plan. But, many debtors owe too much in arrearages to bring them current in only 36 months. By stretching the payment period out up to five years, you'll pay less each month and have a better chance of getting the plan confirmed.
• Keep nonexempt property. One of the advantages of Chapter 13 over Chapter 7 is that you can keep assets that otherwise would have to be turned over to a trustee. Under the best interests test, a Chapter 13 plan can't be confirmed unless it pays unsecured creditors at least as much as they would have received in a Chapter 7 case. In short, you must pay the value of your nonexempt property at a minimum.

Changing a Plan Length When Circumstances Change

Five years is a long time. It's normal for things like job losses and medical issues to happen. If your circumstances change, you might be able to modify your Chapter 13 plan length, with the court's approval.

• Turning over collateral. In some cases, debtors decide to give up their homes or cars after filing for Chapter 13 because they're unable to keep up with both loan and arrearage payments. Debtors who turn over collateral might be able to modify their plans to shorten the duration if other bankruptcy law requirements are met.
• Short-term financial problems. Debtors facing short-term financial hardships, such as temporary unemployment, can ask the bankruptcy court to approve a plan moratorium. A plan moratorium gives you a break, usually for no longer than 90 days, from having to make plan payments. Regardless of the length of the moratorium, you must still complete all plan payments under your plan within five years of the date that you started making them.
• Long-term financial setbacks. You also can seek to modify your plan to deal with long-term financial issues, such as having to take a lower-paying job or pick up the cost of health insurance. One option, with court approval, is to modify your plan to stretch out payments to a full five years even if you initially proposed a shorter term. Stretching out the plan term can give you breathing room so you can continue to make loan and arrearage payments and keep assets like your home or car. Other options might include asking for a hardship discharge or converting the case to Chapter 7.

Many things go into drafting a Chapter 13 plan. In fact, most attorneys use a computer program to do the calculations. The best way to find out your obligations and options is to consult with a knowledgeable bankruptcy attorney.