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How Long Is a Chapter 13 Repayment Plan?

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How Long Is a Chapter 13 Repayment Plan?

How Long Is a Chapter 13 Repayment PlanWhen considering a Chapter 13 bankruptcy, you might wonder if it’s better to get a 3 year pay back in order to get the recovery process started. Being on a fixed budget is an unpleasant prospect for many and thinking of the inconvenience may lead you to desire a shorter term for your Chapter 13 repayment plan.

While there’s a lot of confusion on the topic, the truth is that you probably don’t have a choice between a 3 year and a 5 year repayment plan. This decision will be made for you and based on your income (over the 6 months prior to filing).

In 2005, congress passed new laws regarding eligibility for bankruptcy relief. Many feel that the change having the most significant impact on filers was the creation of the “means test” to compare petitioners with other residents in their home state. The purpose of the means test is to prevent “above-median” income households from clearing debt through Chapter 7 bankruptcy. The Chapter 7 is the most common type of bankruptcy, allowing filers to eliminate debt.

Chapter 7 bankruptcy is intended for individuals who simply cannot pay their debts back – resolving the debt on their own with their current income is impossible. Filing for Chapter 13 is another popular option, but it does not “eliminate” debt like the Chapter 7. Instead, the Chapter 13 bankruptcy puts a repayment plan in place through which the debtor is still required to pay back all or some of their debt.

If a petitioner fails the means test (meaning that their income is above the median income in their home state), it will be assumed that they can pay back some or all of their debt. At that point, they must either prove the presumption that they can pay back some or all of their debt wrong with verifiable proof or file Chapter 13. Some clients will fail the means test, but will still be eligible for the Chapter 7 bankruptcy because of acceptable expenses.

To find out if you are eligible to file for Chapter 7, contact a reputable attorney to discuss your specific situation. We’ve got experienced southern California bankruptcy attorneys ready to answer your questions now at Westgate Law.

About the Author

Justin Harelik
Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.