A chapter 13 repayment plan often lasts between 3 to 5 years and you can pay off many of your priority debts and nonpriority debts over this repayment period. At the end of your repayment plan, any of the unsecured debt that you have gets wiped off of your financial record and you can have a clean slate to start over.
One of the main questions that we receive often comes down to whether a debtor can pay off on their plan early. There are some situations where you could be granted a bonus from work, an inheritance or even an improvement in cash flow because of a raise. But can you pay off your Chapter 13 repayment plan early if you get access to extra cash flow?
In certain situations only:
In order to pay off your plan early, you need access to a court order permission. The original agreement that you made with your creditors will need to be amended and in most cases your creditors may object. If you’ve agreed with your creditors to pay out your discretionary income for a period of time in order to pay them off, your creditors may no longer be satisfied with the original agreement. Nonpriority creditors will be entitled to more of your disposable income if you are earning a higher salary. If you have $400 a month that has been allocated in discretionary income and your income rises, these creditors could be receiving up to $600 a month with your new salary. Paying off your chapter 13 bankruptcy early on may mean that you are unable to pay off more of the debt that you actually owe. Getting more of your disposable income over time is not advantageous for creditors.
Choosing to pay in full:
One of the easiest ways to pay your chapter 13 plan early is to pay your creditors in full. If you have access to a large sum of money, and you can pay off all of your nonpriority debts this can eliminate the back of the repayment plan as long as no creditors are impaired.
Working with trustees for one-time boosts:
If you’ve received a small amount of money you could work with your trustee to make extra one-time payment as this will not increase the overall amount that you’ll be contributing to nonpriority creditors. If you come into a bit of extra money you may want to consider working with a bankruptcy attorney so that you could establish a financial strategy for making use of this extra some for repayments.
This post was written by Trey Wright, a bankruptcy attorney in Tallahassee, FL. Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, which specializes in areas related to bankruptcy law, estate planning, and business litigation.