How Long is a Chapter 13?

inch-tape-311800_640The minimum length of a Chapter 13 plan is based on the debtor’s recent annual income.

That period is the “applicable commitment period.”

  • Debtors whose income is below the median income for households of that size may file plans lasting 3 years.
  • Debtors whose income is above the median must file 5 year plan.

Note that plan length says nothing about how much the plan payment must be.

Many Chapter 13 plans for debtors who are above the median income have only nominal payments to unsecured creditors.

How much is the payment?

One of the most frequent misconceptions about Chapter 13 is that because it is called a “repayment plan” that it requires full payment to creditors. That is a myth.

More on how the amount of the  Chapter 13 repayment is determined.

What’s a household?

One of the “black holes” in the “reformed” bankruptcy code is measuring the debtor’s income against “households” in the state of like size.

The Code looks at the income of the debtor and spouse, including amounts that others contribute to their household expenses.

What do we do with housemates? aged parents? exchange students? adult children? any of those who may live with the debtor.

The Census Bureau defines a  household as all those who sleep in one dwelling.

The UST, trustees and some judges want to limit the members of the household to those who are related to the debtor or even to those who are dependents of the debtor for income tax purposes.

Once again, bad drafting of the law leaves us with many unanswered questions about how this ought to work.

This measure is important since the more members of a household, generally, the greater the median income for like households.  That tends to mean that the chances are greater that the household is below the median.

If you count aged parents, for example, there’s a greater chance the household income falls below  the state median, requiring only a three year plan.

The other question that courts struggled with with is whether the commitment period applies if the means test says that the debtors have no payment obligation to unsecured creditors.  The growing consensus is that a 5 year plan is required even if the means test says that unsecured creditors are not entitled to any distribution.

More about Chapter 13

Why file 13

How Chapter 13 works

Chapter 13 is a tax tool

Image courtesy of Pixabay and Nemo

About the Author
Northern California bankruptcy lawyer Cathy is a 30+ year veteran of bankruptcy practice in the Silicon Valley. She is known for energetic representation of clients and her command of bankruptcy law.