Chapter 13 Bankruptcy Plan: 3 vs 5 Years
A chapter 13 plan must specify the duration over which plan payments will be made. Generally, plan payments can continue for either 3 or 5 years depending on the debtor’s annualized “current monthly income” in relation to their state’s median family income for a household of their size. However, debtor’s only obligated to make plan payments for 3 years may extend the duration of their plan “for cause.”
Most debtor’s want their chapter 13 plan to only continue for 3 years. However, for a chapter 13 plan to be allowed to continue for only 3 years the debtor must meet an income threshold. To qualify for a 3 year chapter 13 plan the debtor’s annualized “current monthly income” (current monthly income multiplied by 12 months) must be less than their state’s median family income. This income threshold is designed to give debtor’s with income below the median income for a household of their size a reduced plan duration. Nevertheless, some debtor’s who qualify for a 3 year chapter 13 plan may want to extend their plan to 5 years. However, to increase the plan to 5 years the debtor must show “cause” which justifies the increased plan duration.
Cause For Extending Plan Duration
Certain situations create justifiable cause for extending a 3 year plan up to 5 years. For instance, many people use chapter 13 bankruptcy to stop foreclosure and repay late mortgage payments. However, not all chapter 13 petitioners who qualify for a 3 year plan can cure their delinquent mortgage debt over 3 years, and need up to 5 years to pay off this delinquent mortgage debt. This situation usually creates justifiable cause for extending the chapter 13 plan for up to 5 years. Similar situations creating justifiable cause include the need to pay priority or secured claims in full. If the debtor cannot repay these debts over 3 years the bankruptcy court may find justifiable cause for extending the chapter 13 plan to 5 years.
If the debtor’s annualized current monthly income meets or exceeds their state’s median family income, the debtor must propose a 5 year chapter 13 plan.
Chapter 13 bankruptcy is very complex and should not be attempted without the advice of a bankruptcy attorney. To speak with our chapter 13 bankruptcy attorney call Sacramento Law Group at (916) 596-1018. Our chapter 13 bankruptcy attorney can determine whether you need a 3 year or 5 year chapter 13 plan.