Paying off Chapter 13 plan early


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Dear Bankruptcy Adviser,
I am in month 37 of my 60-month Chapter 13 bankruptcy. My repayment plan base is $88,500. My balance to complete the plan is $35,900. The original total that I owed was more than $100,000. I want to try and get out of the Chapter 13. Can I just pay off the remaining $35,900 and be done? Or do I need to pay off 100 percent of the original ($100,000) balance plus fees if I want out early?
— Cindy

Dear Cindy,
Before I answer your questions, I need to elaborate a little bit about the Chapter 13 bankruptcy process. Chapter 13 is a repayment of some or all of your debt over a three- to five-year period of time. Most or all of your creditors are grouped together into one large pool. You then make payments each month to the individual assigned to your case, called a trustee. The trustee disburses your payment to the creditors.

When you file your case, the trustee and you or your attorney decide a reasonable amount that you can manage to pay back to your creditors. That amount is based on your assets, monthly income and monthly expenses. In your case, you are paying back about 80 percent of your outstanding debt.

You are three years into the five-year Chapter 13 (37 months out of 60) and made quite a bit of progress. However, you are not paying back 100 percent of your creditors. Once you finish the 60 months, the remaining 20 percent of your debt is eliminated, or discharged. You will not have to pay back anything on the remaining debt.

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In most cases, if you are looking to get out of the bankruptcy within 60 months, you must pay back 100 percent of all the debts owed to your creditors. That means your early payback would include the 20 percent being discharged. There are a few exceptions and your attorney or the Chapter 13 trustee assigned to your case would have to research whether one exists in your specific bankruptcy district. But it is more likely than not that you must stay the course and continue to make payments for another 23 months.

The rationale is basic: If you have the means to make a lump-sum payment on the plan then you should be able to continue making monthly payments until the remaining balances are also paid. Maybe you got a “windfall” like an inheritance, lottery winning or large bonus at work. All your creditors would be entitled to “share” in that added income.

One thing to look at is the total number of creditors who filed claims in your case. A claim is what a creditor files with the court to indicate what you owe for that particular debt. Sometimes, a few creditors do not file claims, simply deciding it is not worthwhile to wait to be repaid. This does happen quite often.

That means the total balance owed in your case might be less than what you originally owed when you filed your case. And that also means you might have less to pay in order to exit sooner.

Either way, you will likely have to pay more than you think in order to exit early. It might be best to simply continue paying for the next two years.

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