For people who’ve filed chapter 13 bankruptcy attorney Brooklyn NY , the question of whether to pay off the repayment plan early sometimes arises. It’s a tempting idea. Repayment plans don’t leave much discretionary income for debtors, and escaping the process can feel like a reward in itself. However, there are a few reasons to stick with the plan even if it looks like it will continue well into the future.
1). Paying off the plan means repaying all the unsecured creditors in full. Without a payoff, these creditors would probably receive a fraction of the total distribution and the rest would be discharged, so essentially the debtor would be trading a lot of money up front just to get out of bankruptcy early.
2). The hypothetical of paying off the plan usually involves the debtor obtaining additional money to pay down the debts in the plan, sometimes thanks to the kindness of a family member. The problem here is that the trustee might consider any gift a source of income and raise the plan base before a discharge can be entered. This just means more money for the creditors and little benefit to the debtor.
3). Debtors who would rather dismiss their cases and then pay off the creditors might get out of bankruptcy quicker, but they won’t gain many of the benefits of bankruptcy. If a debtor files bankruptcy to obtain a discharge, i.e. not just to stop a foreclosure or other reasons, then it’s worth it to continue through until the discharge occurs.
4). Obviously, debtors who want something else out of a chapter 13 filing, like stripping a lien off a secured asset, don’t really benefit from paying off the plan early.
5). On the other hand, debtors in 100 percent repayment plans—another topic that I discussed recently—intend to repay all the creditors anyway, so paying off the plan early shouldn’t cause additional difficulties.
Even for a full 60-month chapter 13 repayment, it’s often better to stick it out to the end than pay off the plan base early. Debtors who do so will gain the maximum benefit from filing bankruptcy.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
