Chapter 13 bankruptcy can last anywhere from three to five years, but the specific timeframe is determined by a number of factors. Let’s take a look at a few of the facts:

Payment Of Secured Creditors

While a debtor may not be required to pay off their entire mortgage or car loan in the three to five year timeframe, they are expected to pay off any arrears. This means that if it only takes a debtor three years to pay off a delinquent balance on their mortgage or any other secured debt, then they only need to remain in bankruptcy for three years. On the other hand, if it takes five years to pay off those arrears, then they may need to remain in bankruptcy for the entire five year timeframe. If a debtor is unable to pay off their delinquent secured debts in five years, they may need to either dismiss their Chapter 13 bankruptcy or surrender the secured property. If the debtor is savvy, they may be able to renegotiate the debt so that it can be paid off within the timeframe of the Chapter 13 bankruptcy; but this is not a guaranteed outcome.

Above-Median Income Debtors

Debtors who earn more than their state’s median income may need to remain in Chapter 13 bankruptcy for five years if remaining in bankruptcy for less than five years leaves some of their unsecured creditors unpaid. This is a rule that is interpreted and approached differently depending on the jurisdiction and the bankruptcy judge. But generally speaking, the bankruptcy court won’t allow an above-median income debtor to remain in a short (3-year) Chapter 13 bankruptcy while their unsecured creditors go completely unpaid. That being said, some debtors (at or below median income) are able to file Chapter 13 bankruptcy and discharge most if not all of their unsecured debts. Above-median income debtors should discuss with their Dallas-Fort Worth bankruptcy attorney how long their bankruptcy will last and how that will impact them financially.

Reasonable Bankruptcy Terms

When determining how long a debtor should remain in bankruptcy, the bankruptcy trustee will look at how reasonable it is to enforce a longer term. If for example, creditors would only receive a few pennies more by keeping the debtor in Chapter 13 bankruptcy longer, the trustee might find the longer term unreasonable. The bankruptcy trustee must weigh the benefits to both creditors and the debtor when looking at all factors to determine the length of a Chapter 13 bankruptcy case. It’s also important to note that the longer a debtor remains in Chapter 13 bankruptcy, the more likely they may run into payment problems because of emergencies popping up. It’s in the best interest of the debtor and secured creditors that the debtor exits bankruptcy as soon as possible so that they can begin rebuilding their financial life.

Reed Allmand, sponsoring attorney for Bankruptcy.net, is constantly looking for ways to provide the best financial information for his clients. Whether you are considering filing for bankruptcy, or are currently going through a Chapter 7 or Chapter 13, visit http://www.bankruptcy.net for up to date news and information you need to know.