Can I pay off my Chapter 13 bankruptcy plan early?

When you enter into a Chapter 13 bankruptcy, you are required to create a repayment plan that is approved by both the court and by the creditors. The amount of money you must repay each month under this plan is set based on your income as well as the amount of eligible debt you are including in the plan. While the time limit for repayment can vary, the normal time for a Chapter 13 bankruptcy repayment plan is between three and five years. However, if you find yourself with extra money for some reason, you may decide to repay your plan early.

So, can you make extra payments on your Chapter 13? This may be possible, but whether paying off your bankruptcy plan early is a good idea or not will depend on several factors.

Early Payment of a Chapter 13 Bankruptcy Repayment Plan

Under the law, you are allowed to repay a bankruptcy plan early. However, before you consider doing so, you need to consult with a bankruptcy attorney because it could affect your bankruptcy plan.

There are a few major factors that determine how early payments will affect your bankruptcy plan. The key factors include:

• How many months you have been in bankruptcy;
• Whether you are required to commit to a 60-month plan;
• The percent of your original debt that you are paying your creditors under your repayment plan.

Generally, if your original bankruptcy plan was set up so that you would pay off 100% of your debts over the course of your plan, you can complete the plan early without a problem. If you didn’t file a 100% plan, however, and you were only paying back a portion of what you owed, then the situation becomes more complicated. In such instances, whatever increase in wealth is allowing you to pay early may also need to be included in your bankruptcy estate.

The fact that your estate is thus made larger could lead the Trustee to require you to amend the plan. The amended plan could require you to pay off more of your debt through larger payments, which would mean that your plan to finish early just backfired.

Case Studies: Paying Off Chapter 13 Bankruptcy Plan Early

Case Study 1: Completion of a 100% Repayment Plan

In this case, the debtor filed for Chapter 13 bankruptcy and proposed a repayment plan that aimed to pay off 100% of their debts over a five-year period. Due to improved financial circumstances, the debtor found themselves with extra funds and decided to pay off their bankruptcy plan early.

Since the original plan was designed for full repayment, the debtor was able to complete the plan ahead of schedule without encountering any issues.

Case Study 2: Partial Repayment Plan and Expanded Bankruptcy Estate

A debtor entered into a Chapter 13 bankruptcy plan where they were only required to pay back a portion of their outstanding debts. Subsequently, the debtor experienced an increase in income and opted to make early payments toward their bankruptcy plan.

However, this increase in wealth raised concerns about the size of the debtor’s bankruptcy estate. The bankruptcy trustee requested an amendment to the plan, which would entail larger payments to accommodate the additional financial resources. As a result, the debtor’s initial intention to pay off the plan early ended up requiring higher payments due to the amended plan.

Case Study 3: Seeking Professional Advice and Considering Alternatives

In this scenario, a debtor found themselves in a position to pay off their Chapter 13 bankruptcy plan ahead of schedule. However, before making a decision, the debtor sought guidance from a local bankruptcy attorney. After a thorough evaluation of the debtor’s circumstances, the attorney advised against early repayment.

Instead, the attorney recommended prioritizing the establishment of emergency savings or exploring alternative financial strategies, such as investing or saving for the future. The debtor heeded the attorney’s advice and pursued a different approach with their surplus funds.