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!