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For certain debtors, a Chapter 13 bankruptcy is preferable to a Chapter 7 bankruptcy. During Chapter 13, the debts are reorganized and dealt with under a structured repayment plan. Some of those debts are paid in full, whereas non-priority debts are partially paid. A Chapter 13 bankruptcy repayment plan lasts for three to five years, depending on certain factors that you can discuss with your attorney.

Your Monthly Income

Your monthly income is the primary factor in determining whether you will have a three-year or five-year repayment period. Your bankruptcy petition includes Form 22C, Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income. The repayment period is also known as the commitment period. Form 22C requests your average monthly income for the six months immediately prior to the filing date. If your average monthly income is below the median income for your state, you can qualify for a three-year commitment period. If your income exceeds this threshold, you’ll probably have a five-year repayment plan.

Your Secured Loans

Your secured debts are those attached to physical property, such as your car loan and mortgage. Significant secured debts are one reason why you might opt for a five-year plan, even if you qualify for a three-year plan. You might not be able to fully cure your arrearages in just three years, in which case you could be in danger of losing these assets. Extending the repayment period to five years can allow you to correct this problem.

Your Creditors’ Best Interests

Chapter 13 bankruptcy requires that you meet a test of the creditors’ best interests to avoid liquidation of your assets. The best interest test requires unsecured creditors to receive at least as much money as if you had filed for Chapter 7 bankruptcy. If you cannot meet this test with a three-year plan, you may have to switch to a five-year plan.

When you become a client of Cutler & Associates, Ltd., you’ll receive all of the legal and practical information you need to get your financial life back on track. Our bankruptcy lawyers won’t file your bankruptcy petition until you are fully aware of what’s involved with the process.