How Long Does A Chapter 13 Bankruptcy Last?

Debts that Remain After a Chapter 13 Discharge

Chapter 13 bankruptcy typically lasts three to five years. The exact duration depends on your income:

Three-Year Plan: For filers with a monthly income below the state median, the repayment period may be as short as three years, although you can choose to extend it to five years if you need lower monthly payments.
Five-Year Plan: For those with a monthly income above the state median, a five-year plan is usually required to ensure creditors receive a larger portion of the repayment.

During the repayment period, you make regular monthly payments to a court-appointed trustee, who distributes funds to creditors. After successfully completing the plan and making all required payments, the court typically discharges any remaining eligible debts, officially ending the bankruptcy.

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How Can I Pay A Chapter 13 Bankruptcy Off Early?

Paying off a Chapter 13 bankruptcy plan early is possible, but it’s a complex process that requires court approval. Here are some important steps and considerations if you’re thinking about paying off your Chapter 13 early:

1. Check if Early Payoff Is Allowed

Some Chapter 13 plans prohibit early payoff because paying off early could change how creditors are paid. The court may deny the request if they believe that paying off early would unfairly benefit you compared to creditors.
Review your plan documents or speak with your bankruptcy attorney to see if early payoff is an option.

2. Discuss with Your Bankruptcy Attorney

Your attorney can help you understand the rules specific to your case and jurisdiction and guide you on the best approach.
The attorney will also need to file a motion to modify the plan, showing the court your intention to pay it off early and requesting permission.

3. Ensure All Priority Debts Are Paid in Full

Priority debts (such as taxes, child support, and alimony) and secured debts (like a mortgage or car loan if included in the plan) must be fully paid before your Chapter 13 can be discharged.
Paying off early will typically require that all creditors, including unsecured creditors, receive as much as they would have if the plan went the full term.

4. Prepare to Pay All Unsecured Debts in Full

In many cases, the court may require that you pay all unsecured debts (such as credit cards or medical bills) in full if you want to finish early.
If your plan originally allowed partial payment on unsecured debts, the court might require you to pay 100% of these debts to close the case early.

5. File a Motion for Hardship Discharge (If Applicable)

If you’re seeking early payoff due to a significant financial hardship (e.g., job loss, medical issue), you may qualify for a hardship discharge.
A hardship discharge can grant you an early release from Chapter 13 without full repayment, but it requires court approval and is only granted under specific circumstances.

6. Consider the Impact on Credit Reporting

Even if you pay off your Chapter 13 early, the bankruptcy will still remain on your credit report for up to seven years from the filing date, rather than being removed sooner.
While paying off early may have some positive impact on creditworthiness, it won’t erase the bankruptcy from your credit history right away.

7. File a Request for Discharge After Early Payoff

Once all debts required by the court have been paid, you can file a request for a discharge of your Chapter 13.
The court will review your case to ensure all conditions are met before issuing a final discharge.

Potential Benefits and Drawbacks of Early Payoff

Benefits: Eliminates monthly payments, may improve debt-to-income ratio, and could give you more control over your finances.
Drawbacks: Early payoff can be costly if full payment of unsecured debts is required, and the bankruptcy remains on your credit report for the same period as if you had completed the full plan term.

In most cases, it’s best to consult your attorney to fully understand the pros and cons of paying off your Chapter 13 plan early. They can advise you on the best way to proceed and help you navigate the legal requirements.

Can You Change A Chapter 13 Plan Length?

Yes, you can request to modify the length of your Chapter 13 plan, either to shorten or extend it. Here’s how this works and what you need to consider:

1. Requesting a Plan Extension

If you’re struggling to keep up with your payments, you may be able to extend your plan up to the maximum five years (60 months), regardless of your original plan length.
Extending the plan can reduce monthly payments, making it easier to stay current.
A motion must be filed with the court, and you’ll need to show good cause, such as a reduction in income, unexpected expenses, or other financial hardship.

2. Requesting a Plan Shortening

To shorten your plan, you must typically be able to pay all priority and secured debts in full, and possibly all unsecured debts as well.
Shortening the plan may require court approval, especially if it changes the amount that creditors receive.
Courts sometimes approve a shortened plan if you’ve received a financial windfall, like a tax refund, inheritance, or settlement, that allows you to pay off your debts more quickly.

3. Filing a Motion to Modify the Plan

Modifying your plan requires filing a motion with the bankruptcy court, typically with help from your attorney.
In the motion, you’ll explain the reason for the requested modification and provide documentation to support it (e.g., income reduction for an extension, new funds for a payoff or shortening).
The court will hold a hearing to review the modification request, and creditors may object if they believe the change affects their recovery.

4. Considering the Impact on Discharge and Creditors

Shortening the plan may mean you’ll have to pay unsecured creditors a higher percentage (or the full amount) than originally planned.
Extending the plan won’t affect your discharge eligibility but may impact the overall amount of interest paid on secured debts included in the plan.

5. Hardship Discharge (If Plan Cannot Be Completed)

If you’re unable to continue the plan due to serious hardship (like permanent disability or job loss), you might qualify for a hardship discharge. This allows you to end the plan early and receive a discharge without paying in full, though it’s granted only in extreme cases.
The hardship discharge requires court approval and is typically reserved for situations where the inability to continue payments is beyond your control.

Modifying your Chapter 13 plan length can help you manage financial challenges or take advantage of a better financial position. Working closely with your bankruptcy attorney can help ensure the modification request meets court requirements and aligns with your long-term financial goals.