A chapter 13 bankruptcy, or “wage-earner’s” bankruptcy, lasts between 3 and 5 years. But what determines this length? Several factors consider the length of a chapter 13 bankruptcy. This article addresses some of the most prominent factors.
1. Applicable Commitment Period: The applicable commitment period is either 3 years or 5 years for a chapter 13 bankruptcy, based on whether the consumer is above-median income or below-median income. If the consumer is below median-income, the commitment period will be a minimum of 3 years; if the consumer is above-median income, the commitment period will automatically be 5 years. What is median-income and how do you determine this number? Median-income is based on the U.S. Census Bureau’s calculation for each state and updates every 6 months; theoretically, half of households are below this dollar number in income, and half the households are above. To determine if you are above or below median-income, you must look at both your household size and income.
Currently, the breakdown for median-income and household size follows:
Oregon: Household of 1: $44,779; Household of 2: $55,568; Household of 3: $60,693; Household of 4: $70,812. For each member of the household above 4, and additional $8,100 must be added.
Therefore, if you have a household of 2 (Husband and Wife with no kids), the median-income is $55,568. If your household income is $40,000, then your applicable commitment period in a chapter 13 bankruptcy is 3 years; if you make $95,000, then your applicable commitment period is 5 years.
Household income is based on the prior six months of income multiplied by 2 for an annualized income.
2. Below Median-Income with Three Year Commitment Period with Extenuating Circumstances: If you are a below median-income consumer and qualify for a 3-year commitment period for a chapter 13 bankruptcy, you may want to extend the 3 years to up to 5 years, depending on your circumstances. For example, if you filed a chapter 13 to stop a foreclosure and you are in arrears by $20,000 on the mortgage, if you agreed on a 3 year chapter 13 bankruptcy, the average payment on the mortgage arrears amounts to $556 per month. However, even though your minimum applicable commitment period is 3 years, you can extend the bankruptcy out to 5 years to render a lower monthly payment to catch up on the arrears, or $20,000/5 years = $334 per month.
Above are some of the main factors that help determine the length of a chapter 13 plan. Below median-income households must be in the chapter 13 bankruptcy for 3 years but can extend this period out to 5 years; and above-median income households must automatically be in the plan for 5 years.
If you are interested in learning more about chapter 13 bankruptcy, please call for a free in-office bankruptcy consultation.