When you file a Chapter 13 bankruptcy case, you are required to submit a repayment plan that lasts three to five years. What happens if you want to pay off your Chapter 13 debt early? You may be able to do so, but it is not as easy as you might think. Thus, it is important that you confer with your bankruptcy attorney before you attempt an early payoff.
Why can’t you just write a check and be done? You might think the bankruptcy trustee would be thrilled to receive a payoff check in the mail, but the trustee must complete an investigation to determine whether you have the ability to make the early payoff and that it will not adversely impact your creditors. You must also obtain approval from the bankruptcy court, which means you must file a motion and give your creditors an opportunity to object to your request.
Why would the trustee or a creditor object to early payoff? An objection may be filed if a party believes they would lose out on receiving the benefit of increases in your disposable income during the “applicable commitment period” of your Chapter 13 plan. In other words, if you are entitled to receive a raise, bonus, inheritance or other “windfall” that could drastically increase your income (and therefore the disposable funds to pay your creditors). Additionally, if the source of your funds for paying off the plan payments are from a non-exempt source, your unsecured creditors will likely want you to pay them more.
The primary risk in paying off your Chapter 13 early is that the trustee or a creditor will argue that your increase in finances should be used to increase your plan payments rather than shortening your plan. If the Court agrees, your plan could be modified and you are stuck paying higher payments for the remainder of your plan. Even worse, the Court may require you to pay 100% of the debt included in your plan to pay it off early, which likely defeats the purpose of filing your bankruptcy in the first place.
There are several factors to consider before attempting to payoff your Chapter 13 plan early. If you would like to discuss your options, please contact us to learn more.
For your student loan, bankruptcy, foreclosure, and debtor’s rights matters, contact DeLadurantey Law Office, LLC at (414) 377-0518. We serve the counties of Milwaukee, Waukesha, Kenosha, and Racine, including such areas as Milwaukee, Merton, Delafield City, Waukesha City, and Kenosha. Visit our web site and like us on Facebook.