Bankruptcy can be a difficult and stressful process, but Chapter 13 bankruptcy may be a good option for those who want to repay their debt without liquidating their assets. This type of bankruptcy allows debtors to make payments over a three- to five-year period, based on their income, which can help them get back on track financially.
Paying off your Chapter 13 bankruptcy plan can feel like a long and arduous journey. However, receiving a windfall – such as an inheritance, lottery winnings, or a large bonus at work – may tempt you to pay the debt in full.
While you might be able to get rid of the repayment plan by making a lump sum payment, you may end up paying more than what you originally agreed to. Be aware of the repercussions of an early payoff so that you can make the best decision for your situation.
Should I pay off my Chapter 13 bankruptcy plan early?

Typically, it is not advisable to pay off a Chapter 13 bankruptcy early. By doing so, you would be required to repay the full amount of debt owed to creditors, rather than the reduced amount.
When you file for Chapter 13 bankruptcy, your trustee and either you or your attorney will determine a reasonable amount of debt that you could feasibly pay back to creditors. This is usually less than the actual amount owed.
You may only have to repay a portion of your debt that is included in your bankruptcy claim, depending on your assets, monthly income, and monthly expenses. The court will determine the percentage you are required to pay back under the plan, which could be as low as 70%. The remaining balance of your debt is discharged once you finish making payments under the Chapter 13 repayment plan.
Paying off your Chapter 13 plan early alters the terms of your bankruptcy case. Instead of having some debt discharged, you will now be responsible for paying all of your outstanding debt to your creditors. This could put a strain on your finances, so it’s important to consider all options before making a decision.
There are many reasons why you should pay off your debt as soon as possible. One of these is that it will free up more money each month to save or spend as you please.
How paying off Chapter 13 bankruptcy early works
Are you facing a sudden influx of cash? You may be considering using it to pay off your Chapter 13 bankruptcy early. Here’s what you need to know about how it works: First, confirm that your finances are secure. This means having enough money not only to pay down the debt in full but also to continue covering your essential living expenses like housing, food, and utility bills.
Before you begin paying off your debt, you’ll need to confirm that your finances are in order. Then, you’ll need to formally request an early payoff from your creditors. This may involve negotiating with them to recoup more of your debt than what was required in your settlement agreement.
Assuming the payoff is approved by the court, you will be responsible for paying off all of the debt claims on your bankruptcy case, including any unsecured debt that would have been discharged had you continued making Chapter 13 plan payments on the original schedule.
Advantages of paying off Chapter 13 bankruptcy early

Once you file for Chapter 13 bankruptcy, you’re required to make monthly payments toward your debt. However, in some cases, you may be able to pay off your bankruptcy early. This usually happens when major life changes occur, like getting a new job or inheriting money. Here are some other reasons why you might decide to pay off your Chapter 13 bankruptcy early.
Free of debt earlier
Debt can be a heavy burden, both mentally and emotionally. Choosing to pay down your debts early can provide relief from that worry and concern, knowing that you don’t have to make monthly payments going forward.
Potential to start fresh sooner
While bankruptcy may leave a mark on your credit history, it also provides an opportunity to start over financially. Discharge of your debts gives you a clean slate to work with and focus on rebuilding your creditworthiness. Although you may still face some financial challenges, bankruptcy can give you a fresh start.
Ability to use disposable income freely
Are you considering filing for bankruptcy? One key factor in the decision-making process is understanding how payments work. In a nutshell, with Chapters 13 bankruptcy, your disposable or discretionary income will be used to make payments. This can be a difficult adjustment, as it generally means living very frugally and having most of your available funds tied up in repaying debts. However, once the full amount is paid off, you will have access to those funds again.
Disadvantages of paying off Chapter 13 bankruptcy early
Debt can be a heavy burden and getting rid of it as soon as possible may seem like the best solution. However, in most cases, paying off your Chapter 13 bankruptcy early does not make sense. Here’s why:
Paying the full debt amount
There are pros and cons to both paying off your debt in a lump sum payment or making payments as dictated by your repayment plan. With a lump sum payment, you’ll be required to pay off your debt in full, but you may be able to do so at a reduced interest rate. However, this option does not provide any flexibility should you experience financial difficulties. Making payments as dictated by your repayment plan will require you to pay an agreed-upon percentage of your debt over a three to five-year period, but you may be able to negotiate a lower monthly payment.
Objections from creditors
Creditors are often reluctant to accept early payoff requests, preferring instead to receive larger monthly payments spread out over the loan term. This could result in higher monthly payments based on your increased discretionary income, without providing any relief from the debt itself.
Won’t improve credit history
There is no easy way to get rid of a Chapter 13 bankruptcy once it appears on your credit history. Despite the temptation to pay off your debt and start over, the bankruptcy will remain on your credit history for seven years from the date you file. An early payoff will not remove the bankruptcy from your credit history any sooner.
How to decide if paying off your Chapter 13 plan early is right for you

Chapter 13 bankruptcy allows individuals to repay their debts over time, usually three to five years. In some cases, however, it may be possible to pay off the debt early. Doing so may not always result in a lower overall debt amount, however, so it’s important to speak with an attorney or trustee assigned to your case before making any decisions.
There is a strong likelihood that you will need to stay the course and continue making payments for the rest of your plan unless you want to risk raising your monthly Chapter 13 payment amounts.
The bottom line
There is a strong likelihood that you will need to stay on course and keep making payments for the rest of your plan; otherwise, you risk increasing your monthly Chapter 13 payment amounts.