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13 plan set at five years, even without disposable income

In a Chapter 13, you make payments to the trustee during the term of the plan, which can vary from three to five years. The plan encompasses the necessary expenses of the debtor, their secured debt payments and, if there is any disposable income remaining, it is allocated to the unsecured debts.

A case from the Ninth Circuit changed the precedent for that circuit and brought it into agreement with the Sixth Circuit, the court of appeals that oversees Kentucky. A split had occurred between the circuits over the length of time a Chapter 13 plan needed to run for if the debtors projected no disposable income during their bankruptcy.

The full bench of the Ninth Circuit reversed an earlier decision and agreed with the Sixth Circuit and other courts that even if the debtor projects no disposable income for the future, the plan length should be five years.

This allows for the possibility that a debtor's income may increase during that period, and would potentially allow their unsecured creditors to receive some payments for their scheduled debts.

The court was concerned that if a plan period were confirmed for three years and a debtor's income were to increase, the unsecured creditors could be shortchanged, as they may not have time to request a plan modification.

The calculations used to determine plan payments can be complex and vary depending on whether you have to use the "means test" as part of the determination. A bankruptcy attorney can assist you with creating your plan and all of the necessary calculations.

Source: Courthouse News Service, "9th Circuit Stiffens Its View of Chapter 13 Plans," Annie Youderian, August 29, 2013

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