When I was in college, the “3 year or 5 year plan” usually referred to if you were graduating early – meaning you were studying hard — or graduating late – which means you were partying hard. But in annals of bankruptcy law, it’s usually the term or amount of time in which you complete a Chapter 13 bankruptcy. A Chapter 13 bankruptcy is usually for people who have not paid their mortgage or car payments in quite awhile and now want to catch up on their payments and keep their asset (ie. house or car). To do this, and pay down the “arrears” or late payments, you must commit to paying the debt for at least 3 years but no more than 5 years.
Here’s how it works:
Let’s say you have a house that could sell for $100,000. Your monthly mortgage payment is $1000, but you haven’t paid your mortgage in 12 months. That means you are $12,000 behind on your mortgage. In a Chapter 13 bankruptcy, you would have to pay that $12,000 over the course of 3 years to 5 years. Without getting complicated or convoluted, the arrears will be paid back $1 for $1 during that time. And depending on how much money your earn, your expenses, and your projected disposable income – will determine how long you will be paying it back. The great thing is that there will be no foreclosure proceeding and no one will take your house while in bankruptcy. Of course, you will still have to pay your current monthly mortgage payment (in this example for $1000) – but the arrears are paid , at least in our district, at 0% interest — and with a deal like that — Chapter 13 plan makes a lot of sense and gives much needed relief to people who feel like they are drowning in debt..
Bennett Cunningham is a Bankruptcy Attorney licensed in Texas and is a former Investigative Reporter for the CBS Television Station in Dallas. Mr. Cunningham has garnered 7 Regional Emmy Awards, including the Best Investigative Reporter in Texas 2 years in a row, as well as several National Awards for his exposés into the mismanagement of taxpayer dollars and government waste.
This blog is not meant to give you legal advice. If you need to seek legal advice, you should consult a licensed attorney in your jurisdiction.