Is Chapter 13 worth paying off early?

Has it become nearly impossible to come out from under debt obligations? Louisiana residents who answer “yes” to that question may find themselves in federal bankruptcy court. Each person’s situation is different, but some debtors could find Chapter 13 bankruptcy to be an appropriate solution. With Chapter 13, the debtor agrees to a payment plan, and they might wonder if paying off the plan ahead of schedule is worth it.

The Chapter 13 payment plan option

Chapter 13 bankruptcy serves as an alternative to Chapter 7 bankruptcy, a process that involves asset liquidation. A working person might find it possible to pay off his or her debts under a structured payment plan, something that Chapter 13 offers. Chapter 13 could result in the discharge of unsecured debt, freeing the debtor from those obligations.

Of course, the debtors would need to follow the established payment plan, which usually runs for about three to five years. Some individuals do not have problems with paying off the plan and may even consider paying the plan off long before the scheduled final payment date.

Paying off Chapter 13 early

A drawback exists when paying Chapter 13 off early. Namely, the debtor may become responsible for repaying 100% of the debt owed and not the decreased amount set by the bankruptcy court.

Paying off the debt early requires approval from the court after making a payoff request with creditors. If approved, debtors can expect to face requirements to pay any previously discharged unsecured debt. That means any credit card debt that went away now comes back.

Still, a debtor may decide to pay off a Chapter 13 plan early. Knowing the potential downsides ahead of time could influence their decision.