Can I pay off my Chapter 13 early?
Often times debtors ask if it is possible to pay their chapter 13 plan off any earlier, either by making higher than scheduled monthly payments, or by one lump sum. If you are in a 100% plan, meaning that you are paying back all of your debts owed to both secured and unsecured creditors, there should not be any issue with you paying off the plan early. You can do this by increased monthly payments or a large lump sum payment.
However, most often, debtors are not in a 100% plan, meaning that not all debts are being paid back to secured and unsecured creditors. If you are in this situation you will certainly want to consult with your attorney before making any decision to try to pay off the debt early. If you are over median income, as calculated by the means test, you are required to be in a five year plan (unless, as explained above, you are paying back 100% of creditors). If you intend to borrow money from a bank or even a family member or friend to pay off the bankruptcy you actually need permission from the bankruptcy trustee to incur debt. If you start making higher than required payments on a regular basis the trustee may think that you have undisclosed income, or that for some reason you are able to pay more. If the trustee thinks you are able to pay more back to your creditors the trustee can do a motion to increase plan base and can actually request that you be required to make the higher payment. For example, if your payment is $400 and you make several payments of $600, the trustee may file a motion to increase your payment to the $600 that you have now demonstrated that you can afford to pay. The trustee’s job is to balance you interests with the interest of the creditors of getting paid back as much as possible.
If you make a lump sum payment the trustee will likely want to know where that money came from. When you are in a chapter 13 bankruptcy some assets can become a part of the bankruptcy, even if you were not entitled them at the time of filing. For example, as a general rule, any tax refund over $600 dollars needs to be turned over to the trustee, unless of course, you can do a motion to retain your tax refund.
If you have questions, or would like to schedule a consultation, contact a St. Louis Bankruptcy Attorney today!
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6 Comments to “Can I pay off my Chapter 13 early?”
Yes, but let your attorney know first, he can give you good advice what to do.
Posted by Tobias on February 5, 2014 at 11:05 PM
If i have a 5year plan and im getting a inheritance from a family do i have to let the trustee know about this even though i want to continue with my plan?
Posted by wakil on February 5, 2014 at 12:42 AM
Sorry to hear that. That is a common complaint about attorneys not calling clients back. In our office, we either call clients back within 24 hours or clients can call me directly and I take care of it. The motion to incur debt to purchase a new vehicle can be done quickly. You might have to set up an appointment with the attorney to discuss it. The closing procedure is in every district different. In our district we have to file the second certificate (Finanical Managment Certificate) and the Domestic Support Obligation statement before the case can be closed. If the trustee has a lot of money on hand, this might be an issue also to be discussed with the attorney. Good luck!
Posted by Tobias on August 17, 2013 at 04:18 PM
Thank you. My vehicle under the plan is paid off and he trustee has $6099 on hand. I just want this over with and to move on with my life. I want to pay it off and no e one by ding want to penalize myself. I have called my attorney 6 times and they won’t call me back. Ugh.
Posted by Kj on August 17, 2013 at 03:38 PM
Good question, it depends on the district your case is filed. I can tell you only how we do it here in St. Louis. Here, it would work, because 1. you are longer than 3 years into the plan and 2. overpayments would go to the secured creditors. The trustee set up payments to secured creditors “to loop” meaning when the monthly payment is paid on the car debt, and he still has money for this month, he pays again. This has not alwasy been like that and might be different in other districts. Before, after the monthly payment to the car creditor was made and if not other secured or priority debt needed to be paid, money would go to unsecured creditors. So, an overpayment was dangerous because it could have been wasted to unsecured creditors who normally would not have gotten anything and would later in the plan be missing for secured creditors. You basically would pay double. Your attorney will probably know the answer or the chapter 13 trustee’s office might tell you as well. Good luck and congratulations making it so long into the chapter 13, most of the chapter 13 cases in St. Louis (75%) don’t make it.
Posted by Tobias on August 17, 2013 at 12:11 PM
I am in month 55 of 60. I owe $2500 and my plan will be paid in full/ I want to buy a new truck but need approval from the trustee. instead of jumping through hoops for permission can i pay the $2500 and get on with my life or should i ride out the 5 months? I am only paying back 18%.
Posted by KJ on August 17, 2013 at 07:55 AM
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