Chapter 13 Debtors with Above Average Income Are in For a Shock

  • Chapter 13 Bankruptcy

Chapter 13 Debtors with Above Average Income Are in For a Shock

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According to a ruling of Ninth Circuit Court of Appeals, Chapter 13 bankruptcy filers who have above-median income compared to people of that state and have no disposable income to pay unsecured creditors cannot opt for a 3-year repayment plan. They will be in bankruptcy for the entire 5 years duration. Chapter 13 bankruptcy lasts for 3-5 years depending on your household income. As per Los Angeles based bankruptcy law firm Recovery Law Group lawyers, people with income below state median remain in bankruptcy for 3 years while those with above median income have bankruptcy plan of 5 years.

However, there are certain exceptions to the rule; like a below-median person can opt for a longer plan and an above-median person can opt for a smaller one if then can pay off all unsecured debt before the five years. Another exception which is seen in some circuits is that above-median debtors can opt for a 3-year plan if their disposable income is negative or zero.

In a chapter 13 bankruptcy, all disposable income is used to repay your debts over a period of 3-5 years. The disposable income is calculated by deducting all essential expenses from your monthly income. Even with a high income, the essential expenses might cause your disposable income to be zero or negative. Many courts had allowed above-median chapter 13 debtors without any disposable income to file for a 3-year repayment plan. This allowed the debtor to get out without spending another 2 years in bankruptcy.

However, the Ninth Circuit has joined other circuits in changing the rules for high-income debtors. With changes in their ruling, the Ninth Circuit joins Sixth, Eighth and Eleventh Circuits on the issue. Above median income people who are filing for Chapter 13 bankruptcy in Arizona, Idaho, California, Montana, Nevada, Hawaii, Oregano or Washington should be prepared for their bankruptcy to continue for 5 years. To know more about bankruptcy, you can call bankruptcy lawyers at 888-297-6023and get details regarding repayment plan and bankruptcy discharge.