How long do chapter 13 plans last?

Generally, Chapter 13 plans last either three or five years depending on whether the filer’s income is below or over the state median income. Generally, filers whose income exceeds the state median income for that size of household would have to complete a five-year repayment plan whereas filers with lower income have the option of a three-year plan.

How is my Chapter 13 monthly payment determined?

Upon the filing of a Chapter 13 bankruptcy, the filer would have to begin making monthly payments to the Chapter 13 trustee. These payments must equal the filer’s ‘monthly disposable income’ — the portion of the monthly income not required to meet the ‘necessary needs’ of the filer and his/her dependents. In other words, the payment equals the filer’s monthly income less mandatory payroll deductions and living expenses. In five-year plans monthly expenses are determined on the basis of the applicable IRS standards.

What payroll deductions are accepted by the Chapter 13 trustee?

Only mandatory payroll deductions are recognized by the Chapter 13 trustee. Those include federal, social security, medicare, state, and local withholdings that the employees must participate in as condition of their employment. However, certain deductions that are normally not allowed when calculating one’s projected annual income in chapter 7 are allowed in Chapter 13. For example, you may deduct your monthly 401(k) loan repayments in Chapter 13 which would allow you to repay the loan against your retirement while repaying all the rest of your unsecured creditors.

What happens if the filer’s income increases over the duration of the plan?

If the filer experiences a change of income within the length of the plan, it may not be necessary to adjust the Chapter 13 monthly repayment amount. However, if the filer’s increases significantly, then the Chapter 13 trustee may request higher monthly payments. Generally, the trustee is not responsible for closely monitoring the filer’s income but would have access to this information through the filer’s annual tax return.

What happens if the filer’s income decreases over the duration of the plan?

If the filer experiences a dip in her/his income while in Chapter 13, the bankruptcy case could be converted to Chapter 7 for change of circumstances. Conversion of the case would allow the person to obtain a discharge of their unsecured debt and obtain a fresh start in a fairly short period of time.

Would I need to complete the three or five-year plan before my debts are discharged?

Yes. Although the filer is required to make all payments under the approved Chapter 13 plan, he/she would not have to make those over three or five years, meaning that the filer could make all required payments faster and obtain a discharge. Furthermore, an increase of the monthly payment due to an income raise could also shorten the length of the plan.

How does chapter 13 affect child support?

Given that the Bankruptcy Code considers the filer’s income as part of his or her bankruptcy estate, child support collection may be stopped (‘stayed’). However, the court may decide to remove the stay and allow child support and alimony withholdings from the filer’s monthly income. The court’s decision would depend on the adequacy of the child and spousal support provisions of the filer’s Chapter 13 plan. Completion of the plan would not affect the payment of post-bankruptcy child and spousal support.

Can a self-employed individual file for Chapter 13?

Yes, a self-employed person may file for Chapter 13 and continue to operate their business throughout the duration of their Chapter 13 plan.

Can a chapter 13 bankruptcy be converted to a Chapter 7?

Yes, a Chapter 13 bankruptcy case may be converted to one under Chapter 7 upon the request of the filer at any time before his/her case is closed.

Should a married couple file a joint Chapter 13 petition or may just one of the spouses file individually?

In most cases, it is preferable that both spouses file in order to discharge any joint debts owed to creditors. If one spouse files individually, the non-filing spouse will remain liable for all joint debts discharged in the bankruptcy. In many cases though, spouses may decide that only one would file in order to maintain available credit to the household. Filers in Chapter 13 are not allowed to incur additional obligations without the exclusive permission of the Chapter 13 trustee.




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