Paying off a Chapter 13 Plan Early in a NJ Bankruptcy

Filing for Chapter 13 bankruptcy can provide much-needed relief if you’re struggling with debt. But what if your financial situation improves, and you want to pay off your bankruptcy plan early?

Paying off a Chapter 13 plan is not as simple as merely paying off the remaining balance. Here’s what you need to know.

The Court Must Approve Any Changes

Your Chapter 13 repayment plan is a legally binding agreement. The bankruptcy court must therefore approve any modifications. 

To pay off your plan early, you’ll need to have your attorney file a formal motion with the court explaining your request.

The judge will then decide whether to grant the request based on the details of your case.

You May Have to Pay the Full Amount Owed

Your total debt obligation under Chapter 13 is typically less than the full amount owed. In many bankruptcy cases, you’re paying some lower percentage, such as 50% to 70%. 

If you want to pay early, the court may require you to pay the full 100% of the debt owed, not just the remaining plan balance. This could mean paying early is not at all advantageous for you.

Your Attorney Can Help Protect Windfalls

If you receive a windfall such as an inheritance, legal settlement, or lottery win, the trustee may claim it to pay your creditors more.

However, your attorney can help you protect your windfall with exemptions. The timing and specifics of your case and your windfall will help determine how much of the debt may be shielded.

Income Changes Must Be Reported

If your income increases significantly, you’ll be required to report it. There is a chance the court will increase your monthly payment. 

This does mean you’ll probably pay off your bankruptcy faster. It also may come as a bit of a disappointment; you might be hoping to spend the money rather than using it in this fashion. It may nevertheless be financially advantageous, especially if paying off your bankruptcy early means paying 100% of the debt owed.

Don’t Go It Alone

Chapter 13 rules are complex. Before making any moves or any decisions, you should work closely with your bankruptcy attorney to help you craft your strategy.

The bankruptcy process can be confusing, but the right legal advice can help you navigate it smoothly. If you have questions, contact our office to set up your free consultation today.

See also:

Chapter 7 vs. Chapter 13 Bankruptcy

What Does a Bankruptcy Trustee Do? 

The Most Common Bankruptcy Filing Errors