When you file for Chapter 13 bankruptcy, you have to propose a plan that pays back some or all of your creditors. In most cases, you must be in a Chapter 13 plan for three to five years. But the length of your repayment plan depends on:
- whether your income is above or below the median income in your state
- the amount of debt you are paying off, and
- how much you can afford to pay into your plan each month.
To learn more about how to propose a successful repayment plan, see our topic area on The Chapter 13 Repayment Plan.
Your Income Determines How Long Your Plan Must Last
In most cases, your level of income determines how long your proposed repayment plan must last (this is also referred to as your commitment period). When you complete your Chapter 13 bankruptcy paperwork, you fill out a form called Form 22C – Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income that calculates the length of your plan.
In general, your plan length depends on whether your average income for the six months prior to filing your case is above or below your state’s median income for a same size household. If your income is below median, you are allowed to be in a three-year plan. But debtors who have above median income must propose a plan that will last five years. Also, keep in mind that your Chapter 13 plan can’t be longer than five years.
In addition to determining your plan length, Form 22C also calculates your projected monthly disposable income. For debtors who have no disposable income according to Form 22C, a minority of courts have allowed plans shorter than five years even if their income was above median. But most courts still require all above median debtors to propose a five-year plan. If you have above median income but want to propose a shorter plan, consult a knowledgeable bankruptcy attorney in your area to discuss your options.
Proposing a Longer Plan May Reduce Your Monthly Payments
If you have below median income, you are allowed to be in a three-year repayment plan. But in most jurisdictions, you can still propose a plan that will last up to five years. A longer plan can make your monthly payments more affordable by allowing you more time to pay off the debts included in your plan.
Example. Jane’s income is below the median for her state (which means she could have filed for Chapter 7 bankruptcy). But she filed for Chapter 13 bankruptcy to catch up on her missed mortgage payments and save her home. Let’s assume that Jane is behind $7,200 on her mortgage and this is the only debt she must pay back in her repayment plan. Not taking into account interest or other administrative fees, her monthly payment would need to be $200 to pay off the debt in three years. But if she proposed a five-year plan, she could reduce her monthly payment to a more manageable $120.
For more information on what debts you must include in your repayment plan, see Debts You Must Pay in Chapter 13 Bankruptcy.
Can Your Repayment Plan Be Less Than Three Years Long?
In general, a Chapter 13 repayment plan must be at least three years long. But there is an exception. There is no length requirement if you propose to pay off all of your unsecured debts in full through your plan.