The chief feature of a Chapter 13 bankruptcy is the repayment plan. A Chapter 13 bankruptcy gives a debtor time to restructure personal finances through monthly payments. How much time is the subject of today’s post.
In general, a proposed Chapter 13 repayment plan must last between three and five years (36 and 60 months). However, there are exceptions. Some jurisdictions allow debtors to propose a repayment plan that is less than 36 months, if the debtor is paying back 100% of all debts (including nonpriority unsecured claims).
Three to Five Year Plan
The length of a Chapter 13 repayment plan is often dictated by the debtor’s average income for the six-month period preceding the bankruptcy filing. When the debtor is below his state’s median income for a similar household, the plan can usually be anywhere from 36 to 60 months long. Median income for each state can be found on the U.S. Trustee’s website. A “below median” Chapter 13 debtor has flexibility in adjusting payments during the bankruptcy case.
Five Year Plan
If the debtor has an income that is above his state’s median income for a similar household, the debtor is typically stuck with a 60-month plan. Some courts allow above-median debtors to propose shorter repayment periods if there is no disposable income. By law, a Chapter 13 plan cannot exceed 60 months.
When a change occurs during the bankruptcy case which makes it impossible to complete the debtor’s Chapter 13 repayment plan, the debtor may request a “hardship discharge” and end the case early. To qualify for a hardship discharge, the debtor must show:
- A financial change that makes the debtor unabile to continue making the scheduled Chapter 13 plan payments;
- The change in finances must be beyond the debtor’s control;
- The change must be serious and on-going;
- Modification of the repayment plan is not practical or feasible; and
- If a hardship discharge is granted, creditors will receive at least as much as they would have received during a Chapter 7 case.
Hardship discharges are only granted for the most extreme cases. The Bankruptcy Code also limits the scope of the hardship discharge to that of a Chapter 7 discharge, so some debts that would be discharged in a Chapter 13 case may not get discharged if the case ends early.
As Long as You Need
Finally, many debtors only remain in Chapter 13 for as long as it takes to solve their financial difficulties. For instance, if the only reason the debtor files Chapter 13 bankruptcy is to stop a foreclosure, once the debtor cures an arrears or modifies loan payments, there may not be a need to remain in bankruptcy. A Chapter 13 debtor is generally able to dismiss the bankruptcy case almost as a matter of right, as long as there is no “bad faith” involved in the dismissal. See Marrama v. Citizens Bank, 127 S.Ct. 1105 (2006).