Can I (or, the better question) Should I Pay Off My Chapter 13 Case Early?

The short answer: paying off your Chapter 13 early isn’t usually a good idea.

By paying off your Chapter 13 case early, you may be required to pay 100% of the filed and allow claims (debt you owe to your creditors) in full instead of the reduced amount based on your income. Keep in mind, when you initially file your Chapter 13 case, you may only be paying a small portion of your unsecured debt back, if any!

For example: Instead of repaying 100% of the debt that’s included in your bankruptcy claims, the court might only require payment of roughly 50% of your unsecured debt. This amount is based on your assets, monthly income and monthly expenses. Once you finish your Chapter 13 repayment plan, the remaining 50% of your debt is discharged, meaning you won’t have to repay that remaining debt.

If you pay your Chapter 13 plan off early, you alter the agreed upon terms of your bankruptcy case. Now, you would be responsible for paying your creditors all of your original outstanding debt, including the amount that would’ve been discharged. Paying off your case early only makes sense if you are already paying 100% of your filed and allowed unsecured creditors and have the means to do so.

The rationale is simple: If you have the means to make a lump-sum payment on the plan, then you should be able to continue making monthly payments until the remaining balances are also paid.