Can I Pay Off My Chapter 13 Bankruptcy Plan Early?

Between all the different types of bankruptcy declarations and intricacies of the legal system, the complexity of it all is often enough to confuse and discourage borrowers. One example of this is the recurring question of one’s ability to pay off a Chapter 13 plan early. Unfortunately, the answer is not so straightforward. Contact our Florida debt defense attorneys today to learn more about how bankruptcy will affect you and your family. 

It’s a Complicated Answer

The technical response to the question, “Can I pay off my Chapter 13 bankruptcy early?” is “yes.” However, the practical response is that it may not be the best idea. This depends on a number of circumstances that are unique to each person’s case. Either way, determining the rate at which you should pay off your Chapter 13 bankruptcy plan should be left to an experienced attorney. 

The Two Circumstances That Determine if Someone Can Pay Off Their Plan Early

The basics of Chapter 13 are that there are two broad categories that plans fall under: 

The “100% plan” means that someone will be paying back creditors who filed claims in their case. Under the 100% plan, one must pay all of their secured and unsecured payments. Usually, someone with this plan does not qualify for debt reduction based on their ability to pay back their debts. 

On the contrary, someone may have a “percentage plan.” This broad category catches all plans that are not 100%, in other words, 1%-99%. This represents their pool of unsecured creditors who will only receive a portion of what they are owed based on the client’s ability to be paid. This reduction is made based on the number of unsecured debts, monthly expenses, and available income.

Which Plan Makes an Early Pay Off More Advantageous?

Should someone have the capability to pay off their 100% plan early, it may be advantageous – but only if they have the 100% plan. This is due to the fact that, by trying to pay off a Chapter 13 plan early, they must repay 100% of the debt owed to creditors anyways. 

Conversely, anyone with a percentage plan would be disadvantaged in paying off their debts early because they would now have to pay the total amount of their debts before the reduction. If someone was to wait the period out and pay only the reduced amount agreed upon in the contract, they would be relieved of the remaining debt. So, in the case of someone who only has to pay 30% over five years, they would be discharged of 70% of their debts after waiting out the five years. Should they try to pay off early, they would have to pay the full 100% of their debts.

The reason that this is a big deal is that the indebted is breaking the terms of their bankruptcy case. A reduced amount of debt is made that way in order to allow the client time and space to pay off their debts while the creditors benefit from getting nearly all disposable income guaranteed from the client for a few years. Someone paying off the debts in full would penalize someone should they break the agreement in their percentage plan.

Consult a Financial Law Firm for Bankruptcy Advice in Florida

While making complicated financial decisions such as paying off a bankruptcy early can be confusing and overwhelming, a Florida consumer law attorney can help. Reach out to one of our tried and trusted lawyers at Sharmin & Sharmin by calling 1-844-Sharmin or following this link to receive a free consultation from us.