Does Chapter 13 Bankruptcy Last Forever?
Recently, a client came to my office and asked this question. He was well prepared and even brought his credit card statements for my review. As we reviewed his Visa, MasterCard and Amex statements I noticed the amount of time it would take to pay these cards off while making only the minimum payments. The answer usually is about 16 years or more! Essentially, he was just paying off the interest plus a negligible amount of the principal each month. In fact, he had already been trying to do this for several years and that is why he ended up in my office.
So the answer to my client’s question is that a Chapter 13 bankruptcy usually lasts from 3 to 5 years. However, trying to manage debts by paying the minimums can last much longer.
Similarly, I frequently get clients in my office who have tried debt consolidation programs. The typical debt consolidation program mirrors the Chapter 13 bankruptcy plan lasting from 3 to 5 years. However, there is no guarantee with debt consolidation programs. They sometimes promise to settle debts for pennies on the dollar and demand several hundred or thousands of dollars each month to do this. At the end of the day these companies are not able to settle certain debts at all. I find it ironic that these debt consolidation/settlement companies often get their clients sued for default or non-payment. After all, isn’t their job to manage the debts without going to court? For this reason the Secretary of State and the FTC often sue these debt settlement companies. They also typically have F ratings from the Better Business Bureau.
Chapter 13 Plan
When a Chapter 13 bankruptcy is filed a Model Chapter 13 Plan is proposed to the Bankruptcy Court. This plan proposes to pay a certain portion of the debtor’s debts, typically over 3 or 5 years. For most debts no interest incurs during the plan and no penalties are incurred. The plan can be shortened if it proposes to pay off 100% of the debts without interest or penalties. A motion can also be made to lengthen the plan beyond 5 years. If the debtor’s household makes less than the median income the plan is usually a 3-year plan. If the debtor’s household makes more than the median income the plan is typically for 5 years. According to the US Department of Justice as of May 1, 2013 the current median income for a household of 1 in New York is $62,451.
Sometimes a Chapter 13 plan is shortened because the debtor’s income decreases. If during the course of a Chapter 13 bankruptcy a debtor’s expenses increase or income decreases to the point that he or she would qualify for a Chapter 7 bankruptcy, the case can be converted to a chapter 7.
Impact of Filing a Chapter 13 on Credit
Before the Bankruptcy Abuse and Consumer Protection Act (BACPA) was enacted in 2005 a Chapter 13 bankruptcy could only show up on a credit report for up to 7 years. BACPA altered this so now the word bankruptcy can show up on a credit report for up to 10 years after filing a Chapter 13 bankruptcy petition. The 10 years begins when the case is filed, not when it is discharged.
If you live in New York and are interested a free bankruptcy consultation please call 212-244-2882 anytime. The Law Office of William Waldner only practices Bankruptcy Law and is always here to help you.
This article is intended for educational purposes only. By reading this article no attorney-client relationship has been created.