Bankruptcy Law: Completing the Repayment Plan Early

When you have a repayment plan in a Chapter 13 bankruptcy, you are required to follow it. Even if you want to pay off your debts early, you can face challenges. If you are interested in paying your remaining debts off early, here are some things you need to know. 

The Repayment Plan

Depending on your financial resources and the amount of debts you had at the time you filed for bankruptcy, your repayment plan would have been set to last between three to five years. The bankruptcy trustee and judge would have decided just how long it should last. 

The period of time that you are supposed to make payments is known as the applicable commitment period. If your income was below that of the state's median for a household, your plan was probably set to last three years. If it was above, your applicable commitment period was likely set at five years. 

Early Payoff

If you want to pay off your remaining debts early, you simply cannot send the bankruptcy trustee the amount owed. You have to get court approval to do so. Surprisingly, there could be objections to this action. 

You and your lawyer have to complete a petition to formally request that you can pay off your debts early. The bankruptcy trustee and your creditors will be notified of your request and each has the right to file an objection. 

For instance, if you plan to pay off your debts early because you receive a significant increase in pay at work, your mortgage holder could object. If you were not paying off the debt early after the increase, the trustee would factor in your new funds and the lender would get a bigger payment each month. When you pay off the debt early, the lender loses out on that bigger payment.  

This is especially important because when your repayment plan was established, most of your debts were reduced as part of an arrangement by the creditors. With increased income, your creditors expect to see more of what you owe paid.

If the court sides with the trustee or a creditor that objects, you will have to continue paying according to the plan. It is important to note that if you did have an increase in income, it will be factored into your current plan and you could face a larger payment each month.

Talk to a law firm such as Lynn Jackson Shultz & Lebrun PC before taking any steps to alter your repayment plan. The lawyer can help you navigate the pitfalls of bankruptcy law and help you potentially avoid a costly mistake.