Chapter 13 bankruptcy typically takes three to five years. During that time, you’ll be on a repayment plan to repay some or a portion of your debts. There are a few factors that will determine how long your Chapter 13 repayment plan will last, including your income. At the end of a successful Chapter 13 plan, the remainder of your dischargeable debts will be erased.
Written by Attorney Jenni Klock Morel.
Updated April 6, 2022
When you file for Chapter 13 bankruptcy protection, you can expect to be in a repayment plan for three to five years. During your Chapter 13 repayment plan, you may pay back some or all of your debts. The length of your plan depends on your income and other factors this article will cover. At the end of a successful Chapter 13 plan, the remainder of your dischargeable debts will be erased.
Who Can File for Chapter 13 Bankruptcy?
If you file for Chapter 13 bankruptcy, you’ll pay back all or a portion of your debts in a repayment plan. You must make a monthly payment to the bankruptcy trustee assigned to the case. This means Chapter 13 filers need to have regular income. It’s also why Chapter 13 bankruptcy is sometimes called the wage earner’s bankruptcy. Individuals or married couples who can show they have the means to pay regular monthly Chapter 13 plan payments are eligible to file for Chapter 13 bankruptcy protection.
Most consumers file Chapter 7 bankruptcy, also known as a liquidation bankruptcy. But Chapter 13 offers benefits that Chapter 7 doesn’t offer. One of the most compelling features of Chapter 13 is an opportunity to keep your home by catching up on missed mortgage payments within your Chapter 13 bankruptcy plan payments. Similarly, you can keep your car by catching up on your car loan. The ability to save your house or car makes Chapter 13 bankruptcy a powerful tool to get a fresh start.
Under the U.S. Bankruptcy Code, Chapter 13 bankruptcy is only available for individuals. Corporations, LLCs, and other types of businesses can’t file under Chapter 13. Stockbrokers and commodity brokers are also barred from filing under Chapter 13, even for personal debts.
What Happens After the Bankruptcy Petition Is Filed?
When you file a Chapter 13 bankruptcy petition, you have to provide the following to the bankruptcy court:
A list of all the creditors you owe and how much you owe on each debt.
Your monthly income and expenses.
A list of your property, its value, and relevant exemptions. Exemptions allow you to protect certain property and belongings valued up to a certain amount.
Tax information, including recent refund amounts and a statement of any unpaid taxes. Either upon filing or shortly after, filers must provide copies of their most recent federal tax returns.
A credit counseling certificate from an approved agency completed within 180 days prior to filing the bankruptcy petition.
A statement that you haven’t filed a bankruptcy case and had it dismissed due to an unwillingness to appear in court within the 180 days prior to filing the bankruptcy petition.
The Automatic Stay
As soon as you file a bankruptcy petition, the automatic stay goes into effect, which immediately stops all collection activity against you. For example, any pending foreclosure or repossession will be halted. Also, collection calls, wage garnishment, and lawsuits for unpaid debt must stop while the bankruptcy case is pending. The automatic stay provides some relief to filers and gives the bankruptcy court time to consider the proposed Chapter 13 plan. The automatic stay doesn’t eliminate debt.
The Meeting of Creditors
A few weeks after filing for bankruptcy, all filers must also attend a meeting of creditors. The meeting of creditors is also called a 341 hearing. This meeting isn’t held in a courtroom or overseen by a judge. It’s overseen by the bankruptcy trustee.
Shortly after filing a Chapter 13 bankruptcy petition, the filer must propose a repayment plan. The plan will include a monthly plan payment amount and lay out which creditors will be paid within the plan, which will be paid outside of the plan, and the amount each creditor will be paid.
You can use the Chapter 13 plan to make up delinquent payments over time. For example, you can pay mortgage arrears or missed car payments. But you can only include payments you missed prior to filing the bankruptcy petition in your Chapter 13 plan. Payments that come due after you file must be paid as usual. For example, your regular monthly payments for secured debts, like a mortgage and car note, must be paid on time. You can’t include these in the repayment plan.
The bankruptcy judge and bankruptcy trustee must approve the plan. Creditors have the right to object to the plan, but the court has the final say. A plan confirmation hearing will be held at the bankruptcy court. If there aren’t any objections to your plan, the court may waive your appearance. That means you don’t have to show up to the hearing.
You’ll send plan payments to the bankruptcy trustee assigned to administer your Chapter 13 case. The trustee will then distribute payments to the creditors under the terms of the confirmed plan.
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How Long Does a Chapter 13 Repayment Plan Last?
Most Chapter 13 repayment plans last for either three years or five years. The length of the repayment plan depends on the filer’s income, the amount of time needed to pay the required plan amount, and other factors. Certain debts must be paid fully within the plan. Even if you’re eligible for a three-year plan, you may need longer to pay the total required plan amount.
A simple way to determine if you’d likely be on a three-year or five-year plan is to look to your annual income and see if you qualify to file a Chapter 7 bankruptcy. Generally, if your annual income, adjusted for household size, falls below your state’s median income then you’d qualify for Chapter 7. If you qualify for Chapter 7 but choose to file for Chapter 13 you’ll have a three-year repayment plan. But you can propose a five-year plan if you need more time to pay the plan in full. Filers who don’t qualify for Chapter 7 will be on a five-year repayment plan.
What’s the Difference Between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 and Chapter 13 bankruptcies are both powerful debt relief tools but they operate in different ways. Chapter 7 is the quickest form of bankruptcy. It typically takes six months or less and doesn’t require a repayment plan. Chapter 13 is more complex. It lasts for three to five years and requires monthly plan payments. A knowledgeable bankruptcy lawyer can help you determine if filing is right for you and which chapter would be best for your financial situation.
As noted above, property is protected in bankruptcy through exemptions. Chapter 13 allows you to keep all of your property, even if no exemption is available, as long as your pay for it through the plan. For example, if you have $5,000 of unprotected equity in your car, you can add that amount to your Chapter 13 repayment plan and keep your car. This option is sort of like buying back the stuff you want to keep and making sure it’s protected from creditors.
There are shorter waiting periods for filing a Chapter 13 case after filing a Chapter 7 or Chapter 13 bankruptcy case and receiving a bankruptcy discharge. This is because the court rewards the effort of Chapter 13 filers to pay back some or all of their debts. You must wait four years to file a Chapter 13 after filing a Chapter 7. You only have to wait two years between Chapter 13 filings. The relevant date for these timelines is the filing date of the first case, not the discharge date.
You can even file a Chapter 13 bankruptcy immediately after a successful Chapter 7 case. You wouldn’t do this to receive another discharge but to establish an affordable payment plan for debts that weren’t erased by the Chapter 7 bankruptcy filing, such as recent tax debts or student loans.
Chapter 13 also protects your loan co-signers against collection efforts if the bankruptcy obligates you to repay the debt yourself. Even if you’re paying back a co-signed debt in your bankruptcy, your co-signers credit score can still be affected. A debt being paid in bankruptcy may be reported as such, and this could harm your co-signer’s credit score.
There are also some disadvantages of filing a Chapter 13 bankruptcy. Legal fees are usually higher because the cases take longer than Chapter 7. Also, your monthly plan payment won’t account for emergency expenses, and you have to be in a court-approved repayment plan for three to five years. During the course of your repayment plan, you usually can’t take on new debt without court permission.
How Is a Chapter 13 Monthly Payment Calculated?
As part of your Chapter 13 bankruptcy filing, you’ll propose a plan to repay some or all of your debts through monthly payments.
The amount of your monthly plan payment will depend on:
Your allowable monthly living expenses,
The amounts and types of debts that you owe, and
The value of the property you own.
Your monthly plan payment is supposed to represent your disposable income left after your allowable monthly expenses are paid. Disposable income is determined in the Chapter 13 means test form. The means test compares your income to the state median income, adjusted for family size.
Certain types of debts must be paid back in full in the plan, while other types of debts may be paid in full or not at all. There are three types of debt: secured debt, unsecured priority debt, and general unsecured debt.
Past-due payments for secured debt, like your mortgage or car loan, can be paid back in full in the plan. This allows you to catch up on missed payments and keep the property.
Unsecured priority debt, such as past-due child support or alimony (spousal support), must be paid in full through the plan.
General unsecured debt may be paid in full, partially paid based on a percentage, or not paid at all. Common unsecured debts include credit card debt and medical bills.
Chapter 13 plans are complex. It may be helpful to consult with a bankruptcy attorney if you plan to file Chapter 13.
Can You Change the Length of Your Repayment Plan?
As you can imagine, a lot can happen in three or five years. Your financial situation may change if you lose a job or have unexpected medical expenses. If your income is below the median in your state for your household size, you can propose a three-year repayment plan or stretch out your plan payments over five years. If your income is below your state’s median and you start out on a five-year plan, you can reduce the length of your Chapter 13 plan by making certain changes.
Turn Over Collateral to Creditor
While in Chapter 13 you’ll continue to pay your monthly mortgage and car note outside of the plan. You’ll also pay any payments you missed prior to filing within the plan. This means that on top of your regular monthly mortgage and car payments, you’ll also pay a portion of the arrears each month.
If you’re struggling to keep up with the combined monthly loan payments and arrearage plan payments, you may want to consider giving up your home or car to the creditor. Not having to pay large past-due mortgage or car payments through the plan can result in a significantly lower monthly payment. If your monthly plan payment is reduced significantly, you may be able to shorten the length of your repayment plan so long as you meet other bankruptcy law requirements.
Similarly, if you can modify your home loan directly with the lender to catch up on past-due payments, you may be able to shorten the length of the Chapter 13 plan.
Short-Term Financial Difficulties
To deal with temporary setbacks, like a bout of unemployment, you can ask the bankruptcy court for a plan moratorium to halt your monthly payments for a short time. If you suspend your plan payments, you’ll likely have to make a larger monthly plan payment when you resume making payments. You must complete all plan payments within five years of the payment start date, regardless of the length of any plan moratorium.
Long-Term Financial Setbacks
To address long-term financial setbacks, like taking a lower-paying job, you may be able to modify a three-year repayment plan to five years. If the court approves your plan, this modification would lower your monthly payment and possibly allow you to keep assets like your home or car and take the lower-paying job.
Request Hardship Discharge or Convert to Chapter 7 Bankruptcy
If your circumstances warrant, and with the court’s approval, you may be able to get a hardship discharge. This means you’d receive a discharge of your dischargeable debts without completing all of your Chapter 13 plan payments. Alternatively, if you’re eligible for relief under Chapter 7 bankruptcy, then converting your case from Chapter 13 to Chapter 7 might be a helpful option.
Chapter 13 bankruptcy is known as the wage earner’s bankruptcy and allows filers with enough income to repay all or part of their debts over time. Chapter 13 repayment plans are three to five years long. The length of repayment plans depends on the filer’s income and how much time they need to pay the required plan amount. Filers must follow many complicated Chapter 13 plan rules. If you’re considering Chapter 13, seek help from a knowledgeable bankruptcy lawyer.