Can I Pay Off Chapter 13 Bankruptcy Early?

If you had to file for Chapter 13 bankruptcy due to unfortunate circumstances that made it difficult for you to handle your monthly debt payments, this can help you pay off your debts, reduce the amount of your monthly payments, and may allow you to keep your home and save it home from foreclosure. However, there are financial ramifications to filing for Chapter 13. If your financial situation improves, you may want to try to pay off your repayment plan early. However, while you can pay off Chapter 13 early, there are conditions that you need to be aware of, as well as circumstances that will prevent you from being able to pursue this plan.

What Is Chapter 13?

Chapter 13 is a form of debt relief that protects individuals who are overwhelmed with debt but make enough money to make full or partial payments to creditors. Also referred to as reorganization bankruptcy, Chapter 13 is a process that restructures your debt and allows you to follow a repayment plan based on your current income. You and your creditors will develop a repayment plan that lasts from three to five years. Once you complete the plan, your remaining debts are discharged, and you will no longer be in debt.

Why Should I File for Chapter 13?

There are many types of bankruptcy, but the two most common types are Chapter 7 and Chapter 13. If you do not make enough money to pay back your debt, you will file for Chapter 7. However, Chapter 13 reorganizes your debt, and the court approves a monthly payment plan so you can pay back a portion of your unsecured debt and all of your secured debt over five to seven years. The following are some reasons why it may be in your best interest to file for Chapter 13:

• You may be able to keep your home. If you are behind on your mortgage payments and facing foreclosure, Chapter 13 may allow you to catch up on payments, reinstate your mortgage, and stay in your home.
• Co-signers may not be held legally responsible. According to the “co-debtor stay” section of Chapter 13, creditors may not go after anyone who co-signed for you on a debt.
• You can sell your property. Since you have made the necessary arrangements to repay your creditors, you can sell your property at a time when it will generate the greatest value.
• You will be able to continue running your business. If you are the sole proprietor of your business, filing for Chapter 13 will allow you to keep your business up and running, provided your business generates enough income to make your monthly Chapter 13 payments.
• Your debt will be frozen. Any debt on unsecured claims will be frozen effective the day you file for Chapter 13. That means any payments you make to creditors are used to pay down your debt, not late charges and interest.

Will I Be Able to Pay Off My Chapter 13 Bankruptcy Plan Early?

If your financial circumstances improve dramatically, it is understandable that you would want to put some of that money toward repaying your plan early. Unfortunately, it is unlikely that you will be let out of your plan simply because your income has increased. Your monthly payment may increase since your creditors are entitled to your discretionary income for repayment. There are three primary reasons why it is unlikely that you will be able to pay off your Chapter 13 bankruptcy early, including the following:

• You are subject to the timeframe of your contract. Even if your income has increased, it does not mean you can pay off your debt early. An increase in income means that your repayment amount will increase, and you will still be required to make payments for the time period that you agreed to in your contract.
• You will not be granted a discharge. Paying off your repayment plan early breaks your contract and commitment to paying for the full payment period. This means you are no longer eligible for your remaining debt to be discharged.
• Your creditors will object to paying off your contract early. To pay off your Chapter 13 bankruptcy plan early, you must get approval from the court and your creditors. Even if you get court approval, it is unlikely that your creditors will approve your request because they will know that you are making it because you are likely making more money. As a result, they will want to receive increased monthly payments for your commitment, as they will make more money from this arrangement than letting you pay off your debt early.

Are There Any Circumstances Where I Can Pay My Chapter 13 Debt Early?

While it is unlikely that you will be able to pay off your Chapter 13 Debt early, this rule has one exception. The only circumstance in which the courts and creditors will allow you to pay off your Chapter 13 debt early is if you can pay off your initial debts in full. If you pay back the total amount you owe, there will be no need for a payment plan, which means you will not need a discharge, and your creditors will receive 100 percent of their claimed amount. If you have questions or concerns about whether it is in your best interest to pay off Chapter 13 early or continue your payments for the duration of the contract, it is highly recommended that you contact an experienced bankruptcy lawyer at your earliest convenience.

Our Vernon Bankruptcy Lawyers at the Law Offices of Jason L. McCoy, LLC Assist Clients With Chapter 13 Matters

If you would like to know more about Chapter 13 and whether you can pay off your debt early, do not hesitate to contact our Vernon bankruptcy lawyers at the Law Offices of Jason L. McCoy, LLC. We will review the circumstances of your case and determine whether it is in your best interest to pay off your Chapter 13 early or continue making payments until you have met the terms of your contract. To schedule a free consultation, call us today at 860-872-7741 or contact us online. Located in Vernon, New Haven, and Waterbury, Connecticut, we serve clients in Tolland County, New Haven County, and Hartford County.