Should I Pay Off My Chapter 13 Plan Early
In most cases, paying off Chapter 13 early isnt a good idea. By paying off Chapter 13 early, youre required to repay 100 percent of the debt you owe to your creditors instead of the reduced amount.
When you file your Chapter 13 case, your bankruptcy trustee and you or your attorney decide on a reasonable amount of debt generally, less than what you actually owe that you could manage to pay back to your creditors.
For example, instead of repaying 100 percent of the debt thats included in your bankruptcy claim, the court might only require payment for 70 percent under the plan. This amount is based on your assets, monthly income and monthly expenses. Once you finish your Chapter 13 repayment plan, the remaining 30 percent of your debt is discharged, meaning you wont have to repay that remaining debt.
If you pay your Chapter 13 plan off early, you alter the agreed upon terms of your bankruptcy case. Now, youll be responsible for paying your creditors all of your original outstanding debt, including the amount that wouldve been discharged.
The rationale is simple: If you have the means to make a lump-sum payment on the plan, then you should be able to continue making monthly payments until the remaining balances are also paid.
Who Should File Chapter 13 Bankruptcy
Many people think of bankruptcy court as the final stop on a path to financial ruin, the only option left when repaying debts seems impossible. But theres hope even in bankruptcy, and Chapter 13 of the federal bankruptcy code offers the closest thing to a soft landing.
Sometimes called the Wage Earners Bankruptcy, Chapter 13 allows those with enough income to repay all or part of their debts as an alternative to liquidation. Its bankruptcy for those whose biggest problem is dealing with creditors demands for immediate payment, not lack of income.
One of its most attractive features is the chance to keep your home after Chapter 13 bankruptcy as long as you can pay the mortgage and any amount required by your Chapter 13 repayment plan..
Under Chapter 13, people have three to five years to resolve their debts while applying all their disposable income to debt reduction. The option allows applicants to eliminate unsecured debts while catching up on missed mortgage payments. Short-circuiting home foreclosure is one of the options most attractive features. Though keeping your home can be a major relief, youre required to spend years living under the supervision of a court-appointed trustee who will collect and distribute your payments.
How Chapter 13 Works
A chapter 13 case begins by filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, the debtor must also file with the court: schedules of assets and liabilities; a schedule of current income and expenditures; a schedule of executory contracts and unexpired leases; and a statement of financial affairs. Fed. R. Bankr. P. 1007. The debtor must also file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. 11 U.S.C. §;521. The debtor must provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case . Id. A husband and wife may file a joint petition or individual petitions. 11 U.S.C. §;302.
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:
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What Is A Chapter 13 Discharge
Once you have filed bankruptcy with a qualified attorney and have made routine payments on your payment plan, you then enter into the Chapter 13 discharge process. This discharge releases you from all of your dischargeable debt. Once the discharge is approved by the court, creditors may not attempt to further collect your debt. If your payment plan is not completed, you may receive a partial discharge or convert the case to a Chapter 7 bankruptcy. You qualify for this discharge as long as you have made your payments on your plan, have not received a prior Chapter 13 discharge within two years of your Chapter 13 bankruptcy filing date, have not received a Chapter 7 discharge within 4 years of your Chapter 13 filing date, and completed all the required financial management courses instructed to the court system.;
A Helping Hand
Schedule a free consultation with Acclaim Legal Service to discuss your questions with one of our qualified attorneys.
Can I Pay Off My Chapter 13 Plan Early
If you want to pay your Chapter 13 plan off early, you must first write the Trustees office requesting a balance to complete letter. This request must be in writing and may be faxed, mailed, or e-mailed to this office. Before you are given a balance to complete letter, this office must review your Chapter 13 case. This reviewing process includes a review of the order confirming plan, consent orders, if any, and all proof of claims filed with the Bankruptcy Court. Since this review can be a lengthy process, a balance to complete letter will be provided to you in five to ten business days.
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Ending Your Plan Early
There are only two ways to pay off a Chapter 13 bankruptcy early:
- pay 100% of the allowed claims filed in your case, or
- qualify for a hardship discharge
To understand why your options for an early exit are limited, you need to know how this chapter works, including how your plan length and payment amounts get determined.
Skipping The Section 341 Meeting
Debtors are required to attend a meeting of creditors, which is also called a Section 341 meeting. The name comes from the bankruptcy code that requires you to attend.
Even though it is called a meeting of creditors, in modern bankruptcy practice, creditors rarely attend. It does allow the trustee to clarify anything in the debtors paperwork that raises a question.
The meeting is held under oath, and the debtor is required to speak truthfully. The debtor must provide identification, usually a state-issued identification card like a drivers license and a Social Security card.
The court sets the time and date for the 341 meetings. If the debtor cannot attend for some reason, the session can sometimes be moved to another date. Courts have adapted to these issues by using the telephone or video conferencing when it is not practical for the meeting to be continued until the debtor is available.
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Losing Assets To A Trustee In A Dismissed Case
A Chapter 7 case consists of two distinct tracks. The first one concerns whether the debtor will get a discharge of debt. On the other track, the trustee administers property that can be sold to satisfy creditors.
Whether there is property that can be sold depends on if the debtor has any non-exempt property. The debtor is allowed to keep a certain amount of property that the trustee and the creditors cannot touch. This is the definition of exempt property.
In contrast, any other property that does not qualify for the exempt status is considered nonexempt property. The trustee can take the nonexempt property, liquidate it, and distribute the proceeds to creditors who have valid claims.;
It is possible that a trustee could take possession of the debtors nonexempt property, but the case is dismissed. The debtor would lose the property and still not get the benefits of discharged bankruptcy.
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.
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Consequences If You Don’t Make Your Plan Payments And How To Save Your Bankruptcy
Updated By Cara O’Neill, Attorney
Defaulting on your Chapter 13 plan has many unfortunate consequences. It can lead to your creditors obtaining permission from the court to foreclose on your house or repossess your car. Or the court might dismiss your case or never approve it in the first place. Learn about some of the possible consequences you could run into if you don’t make a Chapter 13 repayment plan payment, as well as options to save your bankruptcy.
What Debts Will A Hardship Discharge Eliminate
A Chapter 13 hardship discharge is similar to a Chapter 7 bankruptcy discharge, and some debts survive Chapter 7 because it wipes out only dischargeable nonpriority unsecured debts. A Chapter 13 hardship discharge won’t eliminate the following types of debts:
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Consequences Of Defaulting On Chapter 13 Plan Payments
Here’s what could happen if you fail to pay your payments.
Your Chapter 13 Bankruptcy Might Not Get Confirmed
After filing your bankruptcy case, the bankruptcy court will determine the feasibility of your proposed repayment plan. Even though this “confirmation” process sometimes takes many months, you’ll start making payments approximately a month after you file, and you’ll keep your monthly plan payments current before confirmation. If you don’t make your plan payments, your bankruptcy case will not get confirmed.
Confirmations often get delayed when the trustee or creditor objects to the original proposed Chapter 13 plan. If the amount confirmed is higherwhich it usually isthe plan payment will be adjusted so that you can complete the plan within the agreed-upon three- or five-year repayment period.
An automatic stay is put into place the moment you file for bankruptcy. With a few exceptions, the automatic stay prevents creditors from initiating or continuing collection activities without requesting permission from the bankruptcy court first. Since most of your creditors get paid through the Chapter 13 plan, they can obtain relief from the automatic stay if you default on your plan payments. A creditor makes the request by filing a motion to lift the stay.
Your Chapter 13 Bankruptcy Might Get Dismissed
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.
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A Clearly Stated Special Right
You can dismiss a Chapter 13 case easily because the Bankruptcy Code says you can, and says so very clearly:
On request of the debtor at any time the court shall dismiss a case under this chapter .
of the Bankruptcy Code.)
Two parts of this deserve to be highlighted:
As a result if you ever want your Chapter 13 case dismissed, usually within a day or so of your Louisville bankruptcy lawyer filing a motion to dismiss your case will be dismissed.
Be aware that there isnt a similar statute enabling the easy dismissal of a Chapter 7 straight bankruptcy case. So this is a powerful right special to Chapter 13.
Write A Letter Of Explanation
Your lender takes a careful look at your finances when you apply for a mortgage. Every time a lender issues a mortgage, they take a risk. Lenders need to know that youll make your payments on time every month. Of course, a bankruptcy on your record is a major red flag.
You can increase your chances of getting a mortgage after bankruptcy by writing a letter of explanation. A letter of explanation tells your lender more details about your bankruptcy and why you needed to declare bankruptcy.
You might want to include details on the circumstances that led to your filing and how your financial life has changed since then. Also, explain the steps youve taken to prevent a future bankruptcy as well like paying off debt and building an emergency fund.
A letter of explanation isnt a requirement to get a mortgage after bankruptcy, but it can help your lender see the bigger picture instead of just a set of numbers. Include your letter of explanation with your mortgage application when you request a preapproval.
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Will Your Credit Score Stay Poor Until Your Bankruptcy Is Removed From Your Credit Report
One common misconception is that your score will remain poor during the duration the bankruptcy is on your credit report. This is not true at all. In fact, you can start rebuilding your credit after your debt is discharged. According to bankruptcy experts, there is even a chance that your score will go above 700 after four to five years.
Get Your Bankruptcy Removed Professionally
In some cases, we recommend speaking with a Credit Repair professional to analyze your credit report. It’s so much less stress, hassle, and time to let professionals identify the reasons for your score drop.If you’re looking for a reputable company to increase your credit score, we recommend Credit Glory. Call them on or setup a consultation with them. They also happen to have incredible customer service.Credit Glory is a credit repair company that helps everyday Americans remove inaccurate, incomplete, unverifiable, unauthorized, or fraudulent negative items from their credit report. Their primary goal is empowering consumers with the opportunity and knowledge to reach their financial dreams in 2020 and beyond.
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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.
How To Build Your Credit After Filing For Bankruptcy
If you are one of those people who want to swear off credit altogether, this is actually a bad idea. You want to rebuild your credit score after bankruptcy even if you dont have any immediate plans on making big purchases. This is because when you have a good credit score, it gives you access to better deals and savings. You dont have to pay deposits or high-interest rates when getting necessary services like utilities and cell phone plans.
So, how can you rebuild credit without going under debt again? Here are some practical tips.
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