How long must my Chapter 13 case last? Understanding the Applicable Commitment Period in Bankruptcy and Chapter 13 Plan Term
Introduction:
When filing for Chapter 13 bankruptcy, debtors are required to propose a repayment plan to address their debts over a specific period. The duration of the plan, known as the applicable commitment period, is determined by the debtor's median income level and plays a crucial role in the bankruptcy process. This article explores the concept of the applicable commitment period and the duration of a Chapter 13 plan based on median income levels.
Applicable Commitment Period:
The applicable commitment period is the time during which a debtor must make payments under a Chapter 13 plan. It is influenced by the debtor's current monthly income (CMI), which is calculated based on the six months preceding the bankruptcy filing.
Below Median Income:
If a debtor's CMI is below the median income for their state, the applicable commitment period is typically three years. This means the debtor must adhere to a three-year repayment plan, during which they make regular monthly payments to the Chapter 13 trustee.
Above Median Income:
If a debtor's CMI exceeds the median income for their state, the applicable commitment period is generally five years. The debtor will be required to propose a five-year repayment plan, subject to court approval.
Duration of Chapter 13 Plan:
The duration of the Chapter 13 plan, which coincides with the applicable commitment period, establishes the timeline for debt repayment and completion of the bankruptcy process. The plan term can be further influenced by specific circumstances and considerations within the debtor's financial situation.
Modifications and Early Completion:
In certain cases, debtors may seek modifications to their Chapter 13 plan, such as reducing the plan term or increasing monthly payments. These modifications typically require court approval and are often based on changes in the debtor's financial circumstances, such as increased income or the ability to repay debts sooner.
Early completion of a Chapter 13 plan is possible if the debtor fulfills all obligations, including making all required payments, within a shorter period than initially proposed. Early completion may provide debtors with a fresh start and an opportunity to rebuild their financial stability sooner.
Conversion or Dismissal:
During the applicable commitment period, unexpected circumstances may arise, making it difficult for debtors to meet the obligations outlined in their Chapter 13 plan. In such cases, debtors may choose to convert their case to Chapter 7 bankruptcy or request dismissal of their Chapter 13 case. The decision to convert or dismiss depends on individual circumstances and should be discussed with a bankruptcy attorney.
Conclusion:
The applicable commitment period and the duration of a Chapter 13 plan are critical aspects of the bankruptcy process. Debtors with CMI below the median income typically follow a three-year plan, while those with CMI above the median income must adhere to a five-year plan. However, modifications, early completion, conversion, or dismissal may affect the original plan term. Consulting with an experienced bankruptcy attorney can provide valuable guidance on navigating the applicable commitment period and developing a suitable Chapter 13 plan that aligns with the debtor's financial circumstances.