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Should you try to pay your Chapter 13 plan early?

On Behalf of | Apr 10, 2024 | Chapter 13 Bankruptcy

Though bankruptcy often carries a stigma, the process helps people regain their financial footing after suffering from mounting debt. Still, even if you decide Chapter 13 bankruptcy is right for you, you might feel tempted to try to complete the repayment plan ahead of schedule.

It is possible to fulfill a Chapter 13 repayment plan early, but doing so may bring complications that you are not able to handle.

The positives of early completion

Carrying debt can be mentally and emotionally taxing, so becoming debt-free sooner may lift a significant burden. Paying off debts early can also allow you to focus on rebuilding your credit and financial future without worrying about ongoing bankruptcy payments. Additionally, you are free to use discretionary income for other purposes instead of devoting it to the bankruptcy plan.

Possible pitfalls of rushing Chapter 13

The primary dilemma with completing a Chapter 13 plan early is that it often results in having to repay the full original debt amount, not just the reduced amount agreed upon in the bankruptcy plan. Creditors are unlikely to simply accept an early lump-sum payment and agree to discharge the remaining debt. Instead, they will likely demand the full outstanding balance. This can significantly increase the total amount you have to pay.

Additionally, creditors may object to an early payoff and push for higher monthly payments for the remainder of the original plan period. This could negate any financial benefits of paying ahead of time. Finishing your repayment plan quickly will also not improve your credit history any faster. The bankruptcy will remain on your credit report for seven years from the filing date regardless.

The potential to owe more money overall often outweighs the benefits of becoming debt-free sooner. You should carefully consider your financial situation and the bankruptcy plan terms before making any decisions about attempting to pay off your obligations ahead of schedule.

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The Law Office of Kim Covington, is a woman owned debt relief agency, and I have helped families, individuals and small businesses, file for bankruptcy relief under the U.S. Bankruptcy Code, for over 24 years.