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How does the court decide if my Chapter 13 payment plan will take 3 or 5 years?

Debtor's income will determine length of their Chapter 13 payment plan

All debtors who are approved for a court-ordered repayment plan under a Chapter 13 bankruptcy will be assigned to make payments to their creditors for either three or five years.

How the U.S. Bankruptcy Court determines whether the plan will last either 36 or 60 months depends largely on a means test that calculates a monthly payment the debtor can be reasonably expected to pay, while maintaining their normal household and family expenses.

"Once the court confirms the plan, the debtor must make the plan succeed," states the federal courts' website. "The debtor must make regular payments to the trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for a prolonged period."

As a starting point, the individual's monthly net earnings - income after taxes and deductions for health insurance or pensions - are weighed against living expenses, including rent or mortgage, car payments, utilities, insurance, food and clothing, as well as other reasonable costs of a middle-class household.

According to the National Association of Chapter 13 Trustees, the individual's finances for the six months prior to their bankruptcy filing is reviewed to determine if they are an "over median" debtor or an "under median" debtor. By finding a median income, the court is basically trying to learn whether an individual earns more or less than those in similar households in their state.

Generally, over-median debtors are considered able to afford a repayment plan that lasts five years, although the association warns that this criteria may differ in various court districts. Under-median debtors aren't expected to commit to a plan that is longer than three years, although the court will consider a longer plan for them if that's what they need to get their financial issues under control.

"The bankruptcy law requires that your unsecured creditors are to receive at least as much as they would get if your non-exempt assets were sold at auction, so we have to keep these figures in mind when drafting your plan," according to the Nashville law firm of Clark & Washington.

During either repayment timeframes, home foreclosures and car repossessions are halted as loan obligations are met through the plan's monthly payments. Car loans are often paid off at a reduced rate and mortgages are expected to be back on schedule when the plan is completed. When the case is concluded, all remaining unsecured debts are discharged.

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