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. 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 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. 

Getting Help

Before paying off a bankruptcy plan early, you should consult with a local bankruptcy attorney to determine whether this option makes sense in your circumstances. Instead of paying off your bankruptcy plan early, you may be better off building up your reserve savings in the event of an emergency or doing other things with your extra cash, as for example, investing or saving for your future.