Exiting Chapter 13 bankruptcy

Some consumers who are overwhelmed by their financial obligations turn toward Chapter 13 bankruptcy protections. A Louisiana resident could seek debt relief without being forced into lawsuits or collection actions because of insolvency. However, not every person wants to complete Chapter 13 and may consider exiting early. Such a decision could come with problems.

A Chapter 13 plan

Chapter 13 bankruptcy involves restructuring debts and agreeing to a 3- to 5-year payment plan. So, some debts would face discharge while others may end up negotiated to a lower amount. The remaining debt becomes part of a payment plan, and the debtor must meet the monthly obligations or face bankruptcy dismissal.

Chapter 13 allows those who qualify to avoid going through Chapter 7 bankruptcy, which involves asset liquidations to pay creditors. If the debtor has sufficient income and assets, Chapter 13 becomes the preferred, if not the only available option. Chapter 7 requires passing a means test, which many wage earners might not pass.

Leaving Chapter 13

A debtor might come into a substantial amount of income that they did not expect. The individual may launch a side business that becomes successful beyond expectations, or the person could inherit substantial assets. In these situations, the debtor might wish to pay off their debts and leave Chapter 13 bankruptcy early.

Exiting bankruptcy requires a ruling from the court, and the court might not approve the discharge. Sometimes, statutory law prohibits the court from doing so, as would happen when the debtor previously filed for bankruptcy and successfully petitioned for a discharge.

Leaving Chapter 13 might require paying all debts in full. So, the debtor should think about their financial situation carefully before requesting a hearing with the judge.