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Why Do Some People Have To Do A Five Year Chapter 13 Plan?


Because the Bankruptcy Code makes it clear that if you are an above-median household, and you are filing a Missouri or Illinois Chapter 13 bankruptcy, then you have to commit to a five (5) year plan. Other situations allow for varying lengths of time, but that is the general rule.

When you file for bankruptcy in the state of Missouri, it is necessary for you to disclose any and all sources of household income over the previous six (6) months before filing. This would include obvious things like money earned from your (and/or your spouse’s) job, like wages, bonuses, or other earnings. But it would also include monies from the government, such as unemployment benefits, Social Security Income, and food stamps; or money received from rental units, part-time jobs, pension/retirement funds, and anything else that you may have made money from over the entire six months prior. All of this data is collected by your attorney, and entered into what is called a “Means Test”. This test determines whether or not you are above or below median income for your particular household size.

For instance, according to the federal government, the average or median income for a household of four (4) is: $67,255.00. If your household income exceeds this level, then you are considered to an above-median income household (in other words, the total income earned in your household per year is above the national average for a family of four). When you file a St. Louis Chapter 13 bankruptcy, and you are above median, then you are required to enter into a five year repayment plan. If your household income level is below the national median, you can choose to do either a three (3), four (4), or five year plan.

Of course, doing a five year plan does have its advantages. You are in the plan for a longer length of time, but this means that the amount you pay each month is smaller than if you were in a plan of shorter duration. A longer plan will also improve your credit rating/score that much more as well (this is because the Trustee will be making monthly, methodical payments to the creditors described in your Chapter 13 plan; these monthly payments will be reflected in the credit bureau’s reports). And a lengthier plan also means that you are under the bankruptcy court’s protection for a full five years, during which no creditors can contact you at all.

The affordable St. Louis bankruptcy lawyers at The Bankruptcy Company have been making sure that our clients fully understand the issues and complexities surrounding their particular case. Our aim is to help guide you through the entire process from start to finish, and get you the fresh start / clean slate that you deserve so that you can move forward with life, and start planning for the future.

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