How long do repayment plans last during Chapter 13 bankruptcy?

On Behalf of | Jan 12, 2024 | Bankruptcy |

Although people often think of bankruptcy as a process for those with minimal assets and income, even successful professionals may sometimes face financial hardship. One of the reasons there are different types of bankruptcy available is that people find themselves struggling financially for all kinds of different reasons.

A Chapter 7 bankruptcy is usually only accessible to those with below-average income and substantial debt. However, a Chapter 13 bankruptcy is a more accessible option available to people in a variety of different circumstances. There aren’t strict income limits on Chapter 13 bankruptcies the way that there are for Chapter 7 filings.

One of the reasons the courts can offer bankruptcy protection to more people in Chapter 13 cases is that the filer must make payments to receive a discharge. How long do those payments typically last?

Repayment plans are multi-year obligations

Proposing a repayment plan is one of the most important steps in a Chapter 13 bankruptcy. The filer can then prepare for a meeting with the court-appointed trustee and representatives from the creditors affected by their filing. During that meeting, everyone has an opportunity to ask questions and propose alternative solutions. After agreeing to terms for the repayment plan, the filer begins making monthly payments. They submit the payment to the trustee who distributes the funds in accordance with the plan to the individual creditors.

The amount of the payment each month, the payment each creditor receives and even the duration of the repayment plan are all up for negotiation during a Chapter 13 bankruptcy. At a minimum, the repayment plan needs to last for three years or 36 months. It can last up to five years in some cases involving higher levels of debt.

If the filer experiences any drastic financial changes during the repayment period, they may need to go back to court to request an adjustment of their current repayment arrangements. Failing to make every payment in full might lead to a dismissal of the bankruptcy filing and the filer losing their opportunity for a discharge. People, therefore, need to have realistic expectations about the need to budget carefully and make payments regularly in a Chapter 13 bankruptcy.

Understanding the rules that apply during different types of bankruptcy may help people select the best option given their circumstances.