Living on a Chapter 13 plan isn’t exactly fun, and if your financial picture starts to improve you might be hoping that you can simply pay it off early and be done with it fast. Unfortunately, a Chapter 13 repayment plan isn’t as simple as a loan repayment plan.
Here’s what you need to know.
Paying “Early” Means Paying off 100% of The Debt Owed
When you, your trustee, and your attorney agree to your bankruptcy plan you’re all agreeing that you’ll make a payment to ensure that a portion of your debt gets paid, say 70%. When that 70% is paid the debt will be discharged.
If you try to pay it early they’ll just say that you have the means to pay the entire debt, and so should do so.
While this might not seem like a big deal, the fact is the bankruptcy still remains on your credit report. This means you’ve put a black mark on your credit and you’ve paid the entire balance in full, which isn’t exactly advantageous.
You Must Formally Request an Early Payoff
You can’t even just look at the entire balance and pay off the whole thing. Instead you have to get formal approval from the court to pay off your Chapter 13 plan early.
In any Chapter 13 plan, the trustee and the courts must approve essentially every move you make.
You Must Report Changes in Income, and Windfalls
If your income changes you do have to report it. The courts will then adjust your payment so that your new disposable income goes straight to the debt. This does mean you’ll pay off your plan faster, even if it doesn’t mean you’ll pay it off all at once.
If you get a windfall the bankruptcy trustee does not always get the right to it. The settlement, or a portion of it, may be entirely exempt. This can depend on when you became entitled to the money or property and when you received it. Your attorney can help you protect as much of this windfall as possible, or help you understand how the trustee claiming the windfall will impact the future of your Chapter 13 case.
You should never try to navigate a bankruptcy case alone, especially not a Chapter 13 bankruptcy, and every move that you make should be made with the help of an experienced, qualified bankruptcy attorney.
If you’re reading articles like this one because you’re scared and exploring your options, why not get a free consultation? We can answer questions about your specific financial situation and help you find the solution that’s right for you.
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