Can I Complete a Chapter 13 Bankruptcy Early?

Finishing a Chapter 13 bankruptcy early may be tempting, but make sure you know all the pros and cons before moving forward.

The way Chapter 13 cases are judged, it is difficult to pay off the Chapter 13 repayment plan earlier than scheduled. However, there are two ways to get that done; this will be explored in this article. 

You will be asked to take a Means test when you file for chapter 13 bankruptcy; this means test is taken to calculate your median income. The median income will be calculated from your last six months income before filing for bankruptcy. 

Every state has its median income for every household, and if the figure for your median income is above that, then you must propose a payment plan with a 60-month duration. But if the median income for your family is below that figure, then you must propose at least a 36-months payment plan. 

Chapter 13 bankruptcy plan is designed to make a debtor pay as much as they can to settle their unsecured debts.  However, what happens in most cases is that the debtor will be asked by the bankruptcy court to pay off a percentage of the debt, and this agreement will be made with the consent of the creditor. As such, it’s difficult to pay off the Chapter 13 plan earlier than usual. There are differences in how courts and districts operate.

Is it possible for Chapter 13 to be Discharged Early?

If you want to pay off your Chapter 13 plan earlier than usual, then there are two ways to do that;

1. Pay off the claims completely

The first method is to pay off your debt, which means that you have to pay what you owe your creditors and not what the bankruptcy court asks you to pay, you don’t need to pay those creditors that didn’t file a proof of claim. You will get a debt discharge when you pay off those claims. 

2. Ask for a hardship discharge 

Another way to get an early discharge is to file a petition to the bankruptcy court and request for a hardship discharge. This type of discharge will only be granted when you prove the following to the bankruptcy court.

  • That the creditors received at least the same thing they would have received if you had filed for a Chapter 7 bankruptcy plan;
  • You can’t continue paying your Chapter 13 bankruptcy due to circumstances that are beyond your control;
  • If it is highly unlikely that your financial situation will change, and 
  • It may be impossible to modify the payment plan to a lower figure because you don’t have enough disposable income 

You can ask for a hardship discharge if you are unable to meet up with your financial obligation due to an accident, a disability, or impairment. 

As stated earlier, bankruptcy trustees, courts, and districts may operate differently for Chapter 13s.

What Are The Pros to completing My Chapter 13 Bankruptcy Plan Sooner than Usual? 

The major benefit of paying off your Chapter 13 payments earlier than usual is that you’ll leave bankruptcy earlier than the court scheduled. This will, in turn, give you the ability to sell any of your assets or incur debts without seeking the approval of the bankruptcy court. 

If your income increases during the course of your bankruptcy plan, then you are obligated to report such increment to the Chapter 13 trustee; this might lead to a modification of your payment plan if the increment is substantial. 

When you completely pay off your Chapter 13 bankruptcy payment plan, then you have the opportunity for a fresh start. 

Is There Any Cons to Completing My Chapter 13 Bankruptcy Plan Early? 

The disadvantage with paying off your debt earlier than usual is that you’ll need to pay off some of your unsecured debt apart from paying off the allowed claims of unsecured creditors, for example, if you owe any back tax, then you will have to pay off those taxes fully. But if part of the tax debt is termed “unsecured debt,” then you will only pay a part of the tax debt. Summarily, if you pay off your chapter 13 bankruptcy earlier than usual, then you have to pay your tax debt in full. 

If you plan to pay off your Chapter 13 bankruptcy earlier than usual, then you should consult with a bankruptcy lawyer to ensure that there are no extra costs attached to the process. And when you want to pay, you should send the lump sum to the Chapter 13 trustee that’s in charge of your bankruptcy case.

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