Filing for debt relief under Chapter 13 can take just a few days or a few weeks, depending on how quickly you complete the steps for filing Chapter 13. However, the time it takes to complete your Chapter 13 bankruptcy case varies. Your Chapter 13 repayment plan dictates how long it takes to complete a Chapter 13 bankruptcy. Several factors impact the length of a Chapter 13 repayment plan.
What is Included in a Chapter 13 Plan?
A Chapter 13 bankruptcy plan reorganizes your debts into an affordable monthly payment. Your Chapter 13 plan includes most debts, except for your ongoing mortgage payments and future domestic support payments (alimony and child support). Debts fall into one of three categories:
- Secured Debts – Creditors who have a lien on collateral, such as mortgages, car title loans, etc. Your back mortgage payments are paid in full through your Chapter 13 plan. Most car loans are also paid in full through Chapter 13.
- Priority Unsecured Debts – Creditors must be paid in full through the bankruptcy plan, such as back taxes and back domestic support obligations.
- General Unsecured Debts – Creditors receive a portion of the amount owed on the account through the bankruptcy plan. When you complete the plan, these debts are discharged. General unsecured debts that are typically eligible for discharge include medical bills, personal loans, credit card debts, and old rent and utility bills.
How Long is a Chapter 13 Bankruptcy Plan?
Most Chapter 13 plans are either three or five-year plans. The controlling factor that determines the length of your Chapter 13 plan is your disposable monthly income. If your disposable monthly income is less than the state’s median income for a household of your size, your Chapter 13 plan may be a three-year plan.
However, if your disposable monthly income exceeds your state’s median income level for a household of your size, your Chapter 13 plan must be for 60 months (five years). Five years is the maximum term for a repayment plan in Chapter 13.
It is important to note that you have the option of filing a five-year plan to stretch out your bankruptcy payments even though you may be eligible to file a three-year Chapter 13 plan. This option can lower your Chapter 13 payments. However, if your disposable income exceeds your state’s median level, you must file a 60-month Chapter 13 plan.
Disposable income is based on your average monthly income for the six months before filing for bankruptcy relief, less allowable monthly expenses. The Chapter 13 Means Test calculates disposable monthly income. Some expenses used to calculate disposable income are limited. You can read more about the Means Test in our blog, “What is the Bankruptcy Means Test?” The blog discusses Chapter 7, but it also describes how the Means Test is calculated.
Because the Means Test is a complicated bankruptcy form, it can be helpful to have a bankruptcy attorney to help you file Chapter 13 to ensure that you do not enter a Chapter 13 plan that lasts longer than bankruptcy law requires.
Can A Chapter 13 Plan Be Shorter Than Three Years?
Yes, in some cases, a Chapter 13 plan could be completed in less than three years. However, this situation typically involves repaying 100 percent of a person’s debts. This situation is uncommon as most people file for bankruptcy relief because they cannot afford to repay all their debts.
Future Considerations To Take Into Account Before Filing A Chapter 13 Bankruptcy
Before filing under Chapter 13, there are several things to consider. For example, most Chapter 13 cases last for five years. During this time, many things can change that impact your Chapter 13 plan.
For example, you could begin earning more money during your Chapter 13 case. If so, you may be required to increase your Chapter 13 plan payment to repay a higher amount to your general unsecured creditors. You are required to report changes in income to the Chapter 13 trustee, which could trigger an amended Chapter 13 plan to increase payments.
On the other hand, you could lose your job or have a reduction in income. Temporary reductions in income are usually not a reason for amending a Chapter 13 plan to lower plan payments. A hardship that results in a temporary financial crisis is also not a reason to lower plan payments, except in a few cases.
Some debtors may qualify for a Chapter 13 hardship discharge. The court typically requires you to prove that your inability to complete your Chapter 13 plan payments is beyond your control, such as you have become permanently disabled. The inability to pay your bankruptcy payments was not your fault, and modifying the bankruptcy plan will not help. Also, your creditors must have received at least as much as they would have received if you had originally filed under Chapter 7.
Explore Debt Relief Options Before Filing Chapter 13
Ascend helps you compare debt relief options. You can use our Chapter 13 calculator to estimate the amount you would pay through a Chapter 13 bankruptcy plan. You can also explore Chapter 7 debt relief options through our website.
Before filing under Chapter 13, weigh all debt relief options carefully. A lot can happen in five years that make it difficult to complete a Chapter 13 plan. If you qualify for Chapter 7, that might be the best way for you to get rid of debts. However, there may be an alternative to bankruptcy that eliminates your debts without entering a five-year bankruptcy plan.