Chapter 13 bankruptcy cases are usually between three and five years long. These cases take a significant amount of time because the debtor’s debt is paid (or not paid) according to a plan to reorganize the debt. This plan is funded through future wages, so while the debtor is making payments to a trustee, they continue to be in the bankruptcy case.
Debtors with income below the median income for their household size in the area in which they live are allowed to file a three year reorganization plan, which allows them to complete their case in three years. However, below-median debtors are allowed to file five year plans if they choose. In many cases this is a very good idea, because if the same amount of debt is paid in a three year plan rather than a five year plan, then the debtor’s payment is substantially more per month. They get out of bankruptcy sooner, but they may not be able to afford the payments.
Debtors with income above the median income for their household size in the area in which they live must file a five year reorganization plan. The purpose of the longer plan is so that the debtor can dedicate all of their disposable income during this time to repay unsecured creditors. A longer plan makes more money available to creditors. It also gives the debtor an opportunity to increase their income during that time which may result in their payment increasing in the bankruptcy case.
Debtors who propose a plan to repay all of their debt in their bankruptcy case are not bound by the three year or five year rule. Debtors who repay all of their debts can propose plans of any duration below five years. They can get out of bankruptcy in a year if they can afford to repay their debt that quickly.