Written by attorney Brian David Lerner

Chapter 13 Plan – Plan Duration

Plan Must Provide Equal Treatment for Claims in Same Class: If the claim is secured, then these secured creditors must be treated the same (although not equal).

All unsecured creditors must be paid the same percentage so there is no priority from one unsecured creditor to another.

The Plan payment period must be specified or the Plan will not be approved. The Plan length can be up to 5 years – except where the income of the debtor and spouse falls below the median income. In that case, the Plan length will be for 3 years. However, a motion can be made in Court to increase the length of the Plan to 5 years for cause. The debtor’s annualized current monthly income is measured against the “median family income" of the debtor’s state, depending on the size of the debtor’s household. “Current monthly income" is based upon the debtor’s income six months prior to the bankruptcy filing. Thus, a debtor whose family income was below the applicable state median at that time cannot be forced to change the plan’s duration to 5 years based on postpetition increases in income.

Maximum 5–year duration: The longest Chapter 13 plan period that may be approved is 5 years. The plan can “cure" a default and maintain payments on a loan that will mature in more than 5 years, but the “cure" period cannot exceed 5 years.

Extending plan duration by confirming second plan in subsequent Chapter 13 case generally prohibited: Some debtors attempt to extend the duration of their plans beyond 5 years by confirming a plan in a second Chapter 13 case. Most courts, however, refuse to confirm Chapter 13 plans in this situation. A debtor may also request that the plan’s duration be reduced, usually in connection with a request to modify a confirmed plan. Courts generally select the date the first payment becomes due under the confirmed plan as the beginning date of the plan payment period.

What grounds exist ‘for cause’ to increase Plan payments to 5 years:

1) To pay priority claims in full: A Chapter 13 plan must pay priority claims in full. If the debtor cannot pay priority claims in full within 36 months, the plan’s duration may be extended for up to 24 additional months in order to satisfy these claims.

2) To pay secured claims in full: Under the law applicable to cases filed before 10/17/05, secured creditors paid over time under a plan are entitled to receive the present value of their allowed secured claims. Because the debtor may not have sufficient income to satisfy this requirement within 36 months, most courts will permit a plan to be extended to 60 months to pay secured claims in full.

3) To cure prepetition arrearages on home mortgage: Some courts have authorized extension of the plan payment period where more time was required for the debtor to cure prepetition delinquency on home mortgage debt.

4) To pay debts not dischargeable under Chapter 7: A court may refuse to confirm a plan for lack of good faith unless payments are made to holders of nondischargeable claims for more than 36 months. Thus, it may be necessary for the debtor to propose a plan longer than 3 years when the debtor wishes to discharge claims nondischargeable under Chapter 7 such as a priority tax claim or child-support claim.

5) To comply with “best interests of creditors" test: If the court finds that additional payments to unsecured creditors are required to satisfy the “best interests of creditors" test (i.e., unsecured creditors must receive on the plan effective date at least as much as they would if the estate were liquidated under Chapter 7), “cause" may exist to extend the plan (or increase payment amounts) to meet this requirement.

6) To satisfy “disposable income" test where plan objection filed: If a contested Chapter 13 plan does not pay all unsecured claims in full, cause may exist to extend the plan duration to “not less than 5 years" so as to satisfy the Code’s “disposable income" test.

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