If you have already filed for Chapter 13 bankruptcy or are in the process of contacting an experienced lawyer in order to file for Chapter 13 in order to better manage your massive debt, it's important that you're well aware of what will happen if you choose to pay off Chapter 13. To discover the serious consequence of opting to pay off your debts early and to put a premature end to your bankruptcy term, simply continue reading.
Can I Pay Off A Chapter 13 Bankruptcy early?
While there are no regulations that will prohibit you from paying off your Chapter 13 bankruptcy payments ahead of time, there are a lot of serious disadvantages which are associated with paying off your bankruptcy early.
What Will Happen If You Pay Off Chapter 13 Early?
It's of the greatest importance to note that if you pay off your Chapter 13 associated debts before the end of your negotiated 3-5 year bankruptcy term, you will be expected to pay for all of your debts. This includes all of the debts that would've been wiped from your finances if you were to keep to the original payment plan associated with your bankruptcy. For this reason, it's an extremely foolish move to pay off Chapter 13, unless you unexpectedly come into a large sum of money and can suddenly afford to pay all of your debts in full. If you speak to a bankruptcy lawyer, it's highly likely that they will advise you against paying off your Chapter 13 associated debts ahead of time.
Reasons Why You Could Be Penalized Harshly For Paying Off Bankruptcy Debts Early
In most circumstances in life, individuals are rewarded for paying off their debts early. For example, individuals who pay off their home mortgages early, end up paying less money to the bank as they are able to avoid paying as much interest as individuals who take longer to pay off their mortgages.
However, the reason why individuals are so strictly penalized for paying off Chapter 13 early is that the government believes that if you are able to pay off your bankruptcy charges in full, you should have enough money to pay for all of the unsecured debts that were due to be permanently wiped as part of your bankruptcy plans.
The Extra Debts You Will Be Liable To Pay For
If you decide to go ahead and use a lump sum to pay for your bankruptcy debts ahead of time, the extra debts that you'll be liable to pay for are your unsecured debts. If you file for bankruptcy using Chapter 13, it's important to note that it's highly likely that you'll have all of your unsecured debts canceled. However, it's likely that you'll only be made to pay a small percentage of the total amount of unsecured debt which you currently have outstanding.
It's also important to remember that there is not a standard percentage of your total unsecured debts which you'll be made to pay and that this amount will depend on your financial situation. Some factors that will influence the percentage of your unsecured debts that you'll be required to pay include your monthly and yearly income, the assets which you own such as properties and businesses, and your personal equity. As a general example, the average individual who applies for Chapter 13, in order to retain control of their finances ends up paying 30% of the total sum of their unsecured debts.
So if you end up filing for bankruptcy and then decide to pay off your secured debts in full or to catch up on the repayment of your secured debts in one payment, you will inadvertently increase your debts. As you will be required to pay for 100% of your unsecured debts and will not be able to wipe any of your unsecured debts from your financial records. For this critical reason, if you don't want to end up having to pay tens of thousands of dollars in debts or $100,000 in debts that you can have wiped from your finances, it's not advisable to pay off your Chapter 13 debts ahead of time.
What Happens If You Don't Pay Off Your Chapter 13 Plan Early?
If you are tempted to pay off your Chapter 13 financial plan early, as you believe that your life will be restricted as a result of your bankruptcy, it may be useful to learn about the freedoms which you still have after filing for bankruptcy. For example, if you assumed that you would not be able to travel freely or to leave the country while you are bankrupt, you actually are permitted to leave the United States and to travel to your heart's content. As long as you can pay for your mandated loan payments such as your mortgage payments and can pay for the trips which you plan on going on in full.
You can also start a business after filing for Chapter 13 if you would like to start making more money to avoid getting into financial strife again in the future. You can even start an investment portfolio, with the approval of a bankruptcy court. So there is no real pressing need to pay off your Chapter 13 obligations at once. As you will still have a lot of freedom while you are legally declared bankrupt as there are no laws that restrict your choices during bankruptcy. The only huge downside of filing for Chapter 13 is that it will affect your credit score.
While legally no one can stop you from paying off your Chapter 13 obligations early and prematurely ending your planned out bankruptcy term, there are serious financial implications, if you choose to do so. For this reason, it's well worth talking to a bankruptcy lawyer about your options, if you are tempted to end the terms of your Chapter 13 plan early! Choosing to end your bankruptcy ahead of time, may cause you to sink further into debt, which negates the purpose of filing for Chapter 13 in the first place.