Are There Any Potential Disadvantages Of Paying Off My Chapter 13 Plan Early
In addition to paying the allowed claims of unsecured creditors in full, you must also pay priority unsecured debts in full. For instance, if you owed back taxes, you would need to pay the back taxes in full. However, if some of that tax debt qualified as general unsecured debt, you are only paying a portion of the tax debt. Paying off the Chapter 13 plan early would result in full payment of the tax debt.
There could be other disadvantages based on your specific Chapter 13 plan. You should always consult with a bankruptcy lawyer before you file a motion with the bankruptcy court. The same goes if you send a lump sum to the Chapter 13 trustee to pay off a Chapter 13 plan early.
Wait For The Courts Decision
If the court rules in favor of your creditors to deny an early payoff which is common your monthly plan payment can be affected. Your monthly Chapter 13 payment amount is partially determined by your discretionary income.
An increase in income, along with unchanged costs for approved essentials, means your extra funds are viewed as discretionary income. In this situation, the court can increase your monthly payments under the plan.
If Youre Filing For Chapter 13 Bankruptcy A Chapter 13 Repayment Plan Could Be The Legal Tool That Puts You On A Clear Path Toward Getting Out Of Debt
The repayment plan is like a personalized road map for paying off some or all of your debts in a Chapter 13 bankruptcy, and it works somewhat like a short-term consolidation loan. The plan helps you to restructure your debts for one bimonthly or monthly payment based on a number of factors, including the total sum of your eligible debts, your household income and various potential deductions for items like cost-of-living expenses and required tax payments.
The plan is then submitted to the bankruptcy court for approval, at which time the judge and your creditors will have the chance to challenge it.
If your plan is approved and you make three to five years of regular payments according to the plan, some or all of your remaining debts may be discharged, and your debt picture could be much brighter.
Read on for more info on how a Chapter 13 repayment plan works, how to work through the forms and how to maximize your chances of following the plan during the repayment period.
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Pay Off Chapter 13 Early
Entering into a Chapter 13 bankruptcy repayment plan is an excellent way to restructure your debt and add order to your life while you are getting back on your feet.
During your repayment plan, you will make monthly payments to your creditors for a period of 36 to 60 months . Since this is a long period of time, peoples financial situations often change for the better.
When someone receives an unexpected windfall, their first thoughts are often about how they can pay off their Chapter 13 bankruptcy plan early. Unfortunately, this may be easier said than done. While bankruptcy filings can provide breathing room and help you get back on your feet, they must balance your rights with the rights of your creditors.
How Much Is Chapter 13 Bankruptcy
To file for Chapter 13 Bankruptcy, there are several fees that you must pay. These fees can include, but are not limited to:
- Filing Fee for Chapter 13 – $313
- Converting your Chapter 7 filing to a Chapter 13 filing – Free
- Converting your Chapter 13 filing to a Chapter 7 filing – $25
- Qualified credit counseling course – $19.95 and up
- Attorney fees ranging from $5,000 – $6,000 in Riverside and San Bernardino Counties, California.
Note, several factors affect how much you will pay in attorney fees. Requesting to wipe out a student loan or a second mortgage takes a separate filing. This could result in a higher attorney fee. Sole proprietors of a business may also need to pay more due to the complexity of such cases. Debtors involved in a lawsuit when they file for bankruptcy may also pay higher attorney fees.
You should also note that simpler cases often result in lower attorney fees. So, staying organized, keeping your case simple and not having a lot of creditors will save you money on attorney fees. Remember, even the Administrative Office of the U.S. Courts recommends consulting an attorney if you plan to file for bankruptcy.
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How Do I Know If My Case Is Paid Off
Once the Trustee has received your final payment and disbursed the last payment to your creditors, the Trustees office will file a Chapter 13 Standing Trustees Notice of Completed Plan Payments with the Court.; A copy of this notice is sent to you and your attorney.
Do not worry about overpaying.; The Trustee will perform a final audit on your case and, if you paid too much, the Trustee will refund that amount to you.; It is better to overpay a little than to underpay and risk having your case dismissed when it is nearing completion.
Do You Have More Questions About Chapter 13 Bankruptcy We Are Only A Phone Call Away
The Redlands Chapter 13 bankruptcy attorney at Dolen, Tucker, Tierney & Abraham is ready to help. M. Wayne Tucker has over 30 years of experience helping families with their legal troubles. He can help you find the best solution for the financial troubles you and your family are facing. For a no-charge bankruptcy consultation, call us at 326-2769 or fill out our online contact form.
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Can I Pay Off My Chapter 13 Bankruptcy Plan Early
Chapter 13 bankruptcy gives individuals the opportunity to become debt-free by gradually repaying debt without the burden of creditor harassment or overwhelming bills. Individuals get the chance to reorganize their debt into one monthly payment plan with Chapter 13 bankruptcy. The payment plan typically lasts between three to five years.
However, if an individuals financial situation turns around, they might be wondering if they can pay off their Chapter 13 bankruptcy plan early.
What Percentage Of Debt Does A Person Pay Back During Chapter 13 Bankruptcy
There is no set percentage a person pays back during Chapter 13 bankruptcy. Instead, how much a person pays back depends on their financial situation and the agreement reached with their creditors. Some debts, including things such as taxes and back-owed child support, must be paid in full during a Chapter 13 bankruptcy plan.
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Pay 100% Of The Allowed Claims
Once you pay 100% of the allowed claims, including unsecured claims , the court will grant your discharge even if you haven’t reached the minimum number of payments. This can happen if you have enough disposable income during your plan term to allow you to do so, or you receive a windfall that will pay 100% of your allowed claims. The windfall can come from bonuses, lottery winnings, an insurance claim, a gift, a loan, or virtually any other source.
What Are The Benefits Of A 100 Percent Chapter 13 Repayment Plan
One might think that the answer to that question is nothing, but thats not true. It is sometimes worthwhile for debtors to file chapter 13 New York bankruptcy intending to pay their creditors in full even if the discharge isnt really necessarya filing referred to as a 100 percent repayment plan. Obviously it doesnt happen
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Modifying Your Bankruptcy Repayment Plan In Pennsylvania
Seeking approval for a shortened;repayment schedule can work against you financially, and for many debtors, is not a favorable course of action. ;However, you may be able to modify your plan more advantageously through other means.
For example, if youre interested in lowering your monthly payments to your creditors, your Warrington bankruptcy attorney may be able to help you obtain a Chapter 13 moratorium. ;This moratorium will give you a;temporary break from your repayment schedule, typically limited to a period of 90 days. ;A moratorium can be helpful if youve suffered from a short-term injury, short-term job loss, or other temporary change in your financial circumstances. ;The moratorium will not change other aspects of your plan, including the original termination date.
If youve suffered a long-term setback, such as an extremely serious injury, you may be able to permanently modify your plan instead. ;However, even if the court approves your;permanent;Chapter 13 modification request, you will still be obligated to repay your priority debts , as well as your secured debts . Depending on the debtors unique financial circumstances, such modifications may be permissible in accordance with 11 U.S. Code §1329 , which provides the following with certain qualifications:
Additionally, you may be able to qualify for a hardship discharge;if an emergency should arise.
Can I Pay Off A Chapter 13 Bankruptcy Early How
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What Is A Chapter 13 Repayment Plan
Bankruptcy can help you get out from under considerable debt, but not all forms of bankruptcy allow you to keep many of your most important assets along the way. Those with regular income can file a Chapter 13 bankruptcy to help keep key assets like a home or car. In Chapter 13, debts are restructured over a three- or five-year period. If you make regular payments over that time, then some or all of your debts may be discharged.
The Chapter 13 repayment plan is the legal document that lays out how youll pay back your creditors. It must be drawn up and filed with the bankruptcy court within 14 days of filing the bankruptcy petition , after which the judge and your creditors will have a chance to assess and possibly challenge the plan. If the court ultimately OKs your plan, youll then follow through to pay back your eligible debts.
Its possible to DIY your own Chapter 13 plan, but the process can be complicated and detail-heavy. Thats why its best to work with a bankruptcy lawyer, who can help make sure your repayment plan meets all requirements for approval.
Early Payment Of A Chapter 13 Bankruptcy Repayment Plan
Under the law, you are allowed to repay a bankruptcy plan early. However, before you consider doing so, you need to consult with;a bankruptcy attorney because it could affect your bankruptcy plan.
There are a few major factors that determine how early payments will affect your bankruptcy plan. The key factors include:
- How many months you have been in bankruptcy;
- Whether you are required to commit to a 60-month plan;
- The percent of your original debt that you are paying your creditors under your repayment plan.
Generally, if your original bankruptcy plan was set up so that you would pay off 100% of your debts over the course of your plan, you can complete the plan early without problem. If you didnt file a 100% plan, however, and you were only paying back a portion of what you owed, then the situation becomes more complicated. In such instances, whatever increase in wealth is allowing you to pay early may also need to be included in your bankruptcy estate.
The fact that your estate is thus made larger could lead the Trustee to require you to amend the plan. The amended plan could require you to pay off more of your debt through larger payments, which would mean that your plan to finish early just backfired.;
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Request An Early Payoff From Creditors
Paying Chapter 13 bankruptcy off early doesnt involve simply giving your bankruptcy trustee a lump sum to close out your case. First, youll need to formally request an early payoff from all of your creditors and get the court to approve the request.
From there, creditors can either accept or reject your request. In most situations, creditors will object to your paying Chapter 13 bankruptcy off early because it goes against the repayment plan.
In Most Chapter 13 Bankruptcy Cases You Cannot Finish Your Chapter 13 Plan Early Unless You Pay Creditors In Full
Updated by Cara O’Neill, Attorney
If you’re in the middle of a Chapter 13 bankruptcy, and your financial picture starts looking rosy, it’s understandable that you’d want to pay off your repayment plan earlybut don’t count on being let out of your plan. In fact, it’s more likely that your monthly payment will increase because your creditors are entitled to all of your discretionary income for the duration of your three- to five-year repayment period. In this article, you will learn why it’s easier to end your Chapter 13 plan early if you have a financial setback than it is when your finances improve.
Want step-by-step bankruptcy guidance? Read What You Need to Know to File for Bankruptcy in 2021.
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What Reasons Would Someone Have For Paying Off Their Chapter 13 Case Early
The most common reason for paying off a Chapter 13 plan is a windfall. For example, you may be liable for an increased plan payment if you receive an inheritance, lottery, or a large sum of money. Paying off the plan may be the better option.
Also, if your income increases, you may want to pay that increase in income toward back taxes, past-due mortgage payments, or pay off a car loan faster. The court may increase your plan payment and provide additional money to unsecured creditors.
The debtor continues the plan payment for 36 to 60 months, and the extra money goes to medical bills, credit card debt, and unsecured debts.
The Chapter 13 Means Test
In simple terms, the Chapter 13 means test determines the basic structure of the repayment plan. It is divided into two forms Form 122C-1, which determines your average monthly income and the length of the repayment plan, and Form 122C-2, which determines the disposable income youre able to use to pay back your creditors.
Form 122C-1 requires the filer to add up all sources of household income. That figure is then compared to your states median income based on the number of people in your household and your marital status.
If your average monthly income falls below the state median, then your repayment plan can cover three years. If its equal to or higher than the state average, then your plan can cover five years. The length will ultimately be determined by the court, but this form sets a starting point as you work on the initial version of your repayment plan.
Form 122C-2 then uses your average monthly income as a baseline for determining the disposable income that can be used to pay back creditors. The filer can claim numerous deductions on everything from the cost of food to health insurance in order to determine disposable income, but the restrictions on how much can be claimed in each category are often strictly tied to IRS standards.
If you fudge the numbers or simply take your best guess at what you can claim under each category, youre going to run into problems when the court assesses your case.
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The Length Of Your Plan
The length of your plan depends on how your family income compares to other families of the same size in your state. If your income exceeds the state median, your plan is 60 months. If your income is less than the median, your plan minimum is 36 months. In both cases, the plan can’t last longer than 60 months.
What Is The Difference Between Chapter 7 And Chapter 13 Bankruptcy
In 2020, over 440,000 Americans filed for Chapter 7 bankruptcy. In that same time period, almost 234,000 people filed for Chapter 13 bankruptcy. This makes these two bankruptcy types the most commonly filed in the United States. However, these two types of bankruptcies are substantially different.
In Chapter 7 bankruptcy, a trustee may liquidate your nonexempt assets to pay your creditors. In Chapter 13 bankruptcy, you keep your property but must propose a repayment plan in order to pay your creditors. These differences can have a critical effect on what type of bankruptcy you should consider filing.
Though most property in California can be exempt, if you have property that is not exempt, then filing Chapter 13 may be the better option. Chapter 13 may also be the better option if you have non-dischargable debts such as alimony or child support or if you are behind on mortgage payments. An experienced Chapter 13 bankruptcy lawyer can help you sort through the details and find the best option for your situation.
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