How long can you take to repay your debts in a Chapter 13 bankruptcy?

When financial stresses become too much to handle, many people seek a fresh start through a bankruptcy proceeding. There are several types of bankruptcy filings available and a Chapter 13 bankruptcy-or a "reorganization bankruptcy" as it is sometimes called-is one option that my be pursued that does not involving selling off everything you own.

Instead, in a Chapter 13 bankruptcy, you set up a repayment plan which eliminates your debt over time, considering a number of factors including your income. But how long will you have to repay your debt?

How long is too long?

In the recent court case of In re McGehan, the United States Bankruptcy Court considered a situation where an above-median-income couple proposed paying off 100 percent of their debt over five years. However, the Bankruptcy Trustee-the person appointed to watch over the administration of the bankruptcy-objected that the couple could easily have paid the debt off in three years based on their reported disposable monthly income of more than $150,000 per year. For this reason, the Trustee argued that the plan should not be accepted by the court.

The court noted that if the debtors in this case committed all of their disposable income to repayment, they could have completed the repayment in less than three years. However, under federal law, the court must confirm a repayment plan if, among other things, the debtors have proposed their plan in good faith.

Among the factors which can show a debtors' good faith are whether the debtor has stated his or her debts and expenses accurately and whether he or she has made any fraudulent misrepresentation to mislead the bankruptcy court. Considering the applicable factors in this case, the court determined that the five-year repayment plan was offered in good faith. The amount of the debtors' payments could not be the sole and exclusive basis for finding a lack of good faith.

Determining the Time for Repayment

The amount of time for repayment varies depending on a number of factors. These factors include: the current monthly income of the debtor and the debtor's spouse; the number of individuals in the household; and how they relate to the median family income in the applicable state. Depending on the circumstances, the repayment period could be three years or less, or even up to five years.

Determining the appropriate time period for a Chapter 13 repayment plan is just one of the many decisions that must be made in a bankruptcy proceeding. In addition, there are alternative methods of pursuing bankruptcy protections, such as Chapter 7 proceedings.

It's crucial that you select the form of bankruptcy protection that is best suited to your situation and needs. Tennessee consumers are urged to navigate the complex bankruptcy laws with the help and advice of an experienced Tennessee bankruptcy attorney.