Chapter 13 bankruptcy allows debtors to reorganize their debts, catch up on missed mortgage or car loan payments, and pay off nondischargeable priority obligations through a repayment plan. Most Chapter 13 plans must be three to five years long. But how long your repayment plan will last depends on:
- your income, and
- the amount of time you need to pay off the debts included in your plan.
For more information on how Chapter 13 plans work, see our topic area on The Chapter 13 Repayment Plan.
Your Monthly Income Determines Your Plan Length
For the most part, the length of your repayment plan (also called your commitment period) depends on your income. As part of your bankruptcy paperwork, you must complete a document called Form 22C – Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income. On Form 22C, you state your average monthly income for the six-month period prior to filing your case and compare it against the median income in your state for a same size household.
If your income falls below the state median, you can propose a three-year repayment plan. But if your income is above median, you typically must be in a five-year plan. Whether your income is greater or less than the state median, your plan can’t exceed five years in length.
However, there is some disagreement among the courts as to whether an above median debtor with no projected disposable income (as calculated on Form 22C) can propose a plan that is less than five years long. While most jurisdictions agree that you still must be in a five-year plan, some courts have allowed debtors to propose shorter plans. As a result, consider talking to a knowledgeable bankruptcy attorney in your area before filing your case to learn the current rules in your jurisdiction.
To learn more about how to calculate your disposable income on Form 22C, see Calculating Your Disposable Income on Form 22C in Chapter 13 Bankruptcy.
Longer Plan Period Can Mean Smaller Monthly Payments
If your income is below the state median, you can propose a plan that will last only three years. But most courts will allow you to propose a longer plan (up to five years). If you are a below median income debtor, chances are you filed for Chapter 13 bankruptcy to catch up on your missed mortgage or car loan payments or pay off your priority obligations that can’t be eliminated in Chapter 7 bankruptcy.
This means that you have a certain amount of debt that must be paid back through your Chapter 13 plan. By proposing a five-year plan (even though you qualify for a three-year plan), you may be able to stretch your payments over a longer period and reduce your monthly plan payment amount.
For more information on which obligations must be paid back in your plan, see Debts You Must Pay Back in Your Chapter 13 Plan.
Your Plan May Be Shorter If You Pay Back All of Your Unsecured Debts
While most repayment plans must last at least three or five years depending on your income level, you can propose a shorter plan if it pays off all of your unsecured debts (such as credit cards and medical bills) in full.