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Can you pay off your Chapter 13 bankruptcy early?

When you enter into Chapter 13 bankruptcy, a repayment plan is created. This may take 60 months to complete, and you have to stay current on the monthly payments. What you may be wondering, though, is if you can pay it all off early to get yourself out of bankruptcy.

For example, this was the case with one woman, who had paid for 37 months on a plan to pay off $88,500. Her original debt had been over $100,000. After the 37 months of payments, she still had $35,900 to go, and she’d be paying for 23 more months — just under two years. She had the $35,900 and wondered if she could just pay it all off early and be done with it.

In this case, there were potential issues with doing so. About 20 percent of her debt was being forgiven under the terms of her repayment plan. If she chose to pay off the debt early, she may have been required to pay off all of it, rather than just the $88,500. The idea here is that her creditors were accepting less than they were owed, but they wouldn’t want to if she had such a high amount of assets that she could pay over $35,000 all at once.

Therefore, she would probably need to pay more if she wanted to be done early, whereas she could save if she just waited it out and paid the monthly payments.

It is important to note that this is a single example and there are exceptions to this rule. Though this is how it often works, it’s critical to know all of the options that you have in your specific case.

Source: Bankrate, “Paying off Chapter 13 plan early,” Justin Harelik, accessed Dec. 02, 2016

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