Fact: Nobody likes being indebted. Even when you know it will all end eventually, even if you know exactly when it will end, even when you know for sure it will end well – there’s always that dose of anxiety instilled by uncertainty and having limited (financial) options.
That’s why most individuals who find themselves in Chapter 13 bankruptcy try to find ways to pay off their debts and regain financial independence faster. But, is that even possible? And, if it is, is it a good idea to attempt such a maneuver?
The answer to the first question is “Yes” – early payoff is possible. However, when it comes to the second question, virtually every reputable Ch 13 bankruptcy lawyer in San Diego will advise against it. Today, we’ll be exploring the reasons behind this duality, while giving you solid solutions if you decide to go for the early payoff.
Can you pay off Chapter 13 faster?
As we mentioned, it is possible to end Chapter 13 bankruptcy faster. Here’s how the process works and what it entails:
- Secure your finances: The first step is to ensure that your financial situation is stable. This means that you need to have enough money not just to repay your creditors in full but, also, to continue covering your essential living expenses (e.g. rent/mortgage, utilities, food, clothing, healthcare, etc.);
- Formally request an early payoff from creditors: This will entail contacting every creditor listed in your repayment plan and asking if they’re willing to accept an early payoff. Typically, this will lead to a cycle of negotiation and it is quite possible that the creditors will ask for a higher payoff than your settlement agreement initially stated.
- Obtain court approval: If you and your creditors manage to come to an agreement, you’ll then need to obtain approval from the bankruptcy court. The court will review a revised version of the agreement to ensure it is fair to all sides involved and that it complies with California bankruptcy law. Ultimately, the court will have the final say in the matter, deciding whether or not you’ll be able to proceed with the early payoff.
- Pay off all debt claims: If the court approves your request, you will then be responsible for repaying 100% of all debts included in your Chapter 13 bankruptcy case.
Now that we’ve covered how you can get out of Ch 13 bankruptcy early, it is time for a more important consideration: Should you do it?
Is it a good idea to pay off Chapter 13 bankruptcy early?
While it may seem counterintuitive, ending Chapter 13 bankruptcy early is typically not a good idea. The reason for this can be deducted from the above points, but it is most evident in Step #4, where we come to the main caveat of the Ch 13 early repayment process, namely:
- To end a repayment plan early, you will have to pay ALL creditors (i.e. those who timely filed their claims) 100% of their claimed amounts. This includes secured debt (e.g. mortgages, car loans, home equity loans, etc.), as well as unsecured debt (e.g. credit card debt, medical bills, personal loans, etc.).
How Chapter 13 works is that you’re only obligated to repay secured debt in full and funds remaining after that go toward paying off the unsecured debts. However, after the repayment period is over, any remaining unsecured debt gets discharged.
In other words, sticking to the confirmed repayment plan for the duration of the bankruptcy (3 to 5 years for Ch 13) will result in you paying significantly less than if you decide to end the repayment plan early.
Of course, there is another side to that coin, as going for a 100% repayment plan definitely has its benefits, getting out of debt early being only one of them. With this in mind, here’s our final piece of advice: don’t rush the decision.
Instead, consult with an experienced attorney and take the time to weigh your options, as that is the best way to make the choice that will benefit you the most and lead to you regaining your financial independence.
Where can I find a specialized Ch 13 bankruptcy lawyer near me in San Diego?
Bankruptcy Law Offices of Mark L. Miller is a long-standing veteran in the field of bankruptcy law in San Diego. With a team of committed and knowledgeable attorneys, we’re capable of providing in-depth legal guidance in all aspects of the process.
Count on us to devise tailored strategies fit for your unique situation and fierce representation in and out of court. Schedule your appointment at our offices near the Mormon Batallion Historic Site and let us help you become debt-free!