Short answer: Yes, you can pay off a Chapter 13 bankruptcy early but it may cause you to pay more than you are otherwise required to do so.
Longer answer:
Are you in a 36 month plan or a 60 month plan?
In determining how quickly you can get out of a Chapter 13 bankruptcy you need to first determine if you are required to be in the bankruptcy for 60 months or 36 months. Most Chapter 13 bankruptcies last for 60 months. If you are below the Means Test, your bankruptcy may only be required to last for 36 months. However, just because you are required to be in the bankruptcy for 36 months it is not uncommon at all to have your case last for 60 months to ensure your monthly payment is as low as possible.
If you determine that you are below the Means Test (or the Means Test does not apply to you) then you know you can get out of the bankruptcy at the end of 36 months as long as you have paid back any creditors who are required to be paid back. For example, your priority tax debt must be paid back by the end of your bankruptcy. If you had planned to be in the bankruptcy for longer than 36 months but are able to get support from family or a loved one you can pay a lump sum in to pay back the debts that are required to be paid back and then be done at the end of the 36 months.
However, if you are above the Means Test then you are required to be in the bankruptcy for the entirety of the 60 months. The only way you can get out quicker than 60 months is to pay back all of the debt included in your bankruptcy.
Does it make sense to get out early?
Let’s look at an example. In a really easy example let’s say you are doing a Chapter 13 bankruptcy where you owe $100,000.00 in unsecured, non-priority debt but you are paying $200.00 per month for 60 months because you are above the Means Test. That (overly simplified) math adds up to 12,000.00. That’s a pretty good Chapter 13 plan because you will pay back the $12,000.00 and end up wiping out approximately 88,000.00 in unsecured debt. However, if you decide you want to get out of the bankruptcy in less than 60 months then you would have to pay back the $100,000.00 amount, not just the $12,000.00. In a Chapter 13 bankruptcy where you are above the Means Test, the only way you can get out of the bankruptcy earlier than 60 months is if you pay back everyone who has filed a proof of claim in your case within that 60 month period.
On the other hand, if you are below the Means Test and only have to pay off $12,000.00 and you are scheduled to do that over 60 months but you have the ability to pay it off at the end of 36 months, you could do that and only pay back the $12,000.00 amount and be done at the end of the 36 months.
The decision to try to get out of a bankruptcy earlier than 60 months may seem like a great idea but it’s important that you discuss it with your bankruptcy attorney and look to see who all has filed proof of claims in your case. In our example above, does it make sense to get out of the bankruptcy early and pay back $88,000.00 more than you would otherwise have to? It depends on the specifics of your situation but, probably not.
How do you determine the early payoff amount?
If you want to determine what that payoff amount is the best way to figure out that information is to follow a two-step process.
First, log on to the National Data Center website and look at your case. You should be able to see who has filed proof of claims in your case and you can see what amounts are still remaining to be paid. When you look at those remaining amounts you have to determine if you can realistically pay that amount off early. If you believe you can, you then would move to Step #2. (This login information was provided by the Chapter 13 office to you at the beginning of your case. If you do not have it you should reach back out to them requesting that information. The best way to do that is by sending them a letter with your name and case number requesting that login information. We do not have your login information.)
Second, you would request an official payoff from the Chapter 13 Trustee’s office. They are the ones who would have the official payoff amounts. As a bankruptcy attorney, we do not have those specific numbers. You should request that official payoff in writing by including your request as well as your name and case number. You should also provide an explanation to the Chapter 13 Trustee’s office on how you plan to have the funds to make an early payoff. In other words, the Trustee will not run those numbers if you are just curious. However, if you think you have family that is willing to give you a lump sum of money to get out early you should explain that in your letter.
If the Chapter 13 Trustee provides you the early payoff and you determine you can pay off the bankruptcy early then you should continue the conversation with your bankruptcy attorney. They can guide you through that process. Typically, you would pay the additional amount into the bankruptcy to pay off the necessary amounts, and then the Chapter 13 bankruptcy Trustee would start winding down your case.
The bottom line…
As we discussed, you can get out of a Chapter 13 bankruptcy earlier than the 36 to 60-month requirement. The better question is probably how much would it cost to get out of the bankruptcy early and is it worth it. Looking at the National Data Center website first and then requesting an official payoff from the Chapter 13 Trustee’s office will give you the numbers necessary to determine if an early payoff makes sense for you and your family. Once that is done you can begin wrapping up your Chapter 13 bankruptcy.
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