This article is meant to assist debtors in further understanding how their Chapter 13 bankruptcy case is “paid off”. This question is much more complicated than it initially seems, because every case is different, however, there are some basic Chapter 13 principles you should make sure you understand.
Every Chapter 13 bankruptcy case has a “minimum commitment period” based on the income of the debtor(s) at the time of filing. The minimum commitment period is the MINIMUM amount of time you need to be in the case, with the exception of if you are paying off your creditors 100% in full (more on this in a moment), but that is rare. If your income was BELOW the state median income at the time of filing, your minimum commitment period is 36 months from the date of confirmation. If your income was ABOVE the state median income at the time of filing, your minimum commitment period is 60 months from the date of confirmation. Let’s look at an example:
Sarah files a Chapter 13 bankruptcy case and, at the time of filing, her bankruptcy payment is $1000 per month and she owes a total of $50,000 in credit card debt. Her income is BELOW the state median income, so her minimum commitment period is 36 months from the date of confirmation. Over the three years of her bankruptcy, she is anticipated to pay at least $36,000 in plan payments. If she makes all of those payments, the remaining amount of her debt, including interest, will be discharged! What if Sarah wants to pay an additional $100 per month? Will she end her case early? The answer is NO. Even if she makes extra payments, she is still required to be in the bankruptcy case for the minimum commitment period of 36 months from the date of confirmation. The only exception would be if she paid off the FULL $50,000. Extra payments while in a less than 100% bankruptcy payback will NOT decrease your Chapter 13 plan length because you must remain in the plan for the minimum commitment period based on your household income.
It's important to note that every case is different and every plan is different, but generally, an increase in plan payments during your case, like if your income has increased and the Trustee requires your payment to increase based on your budget, will NOT decrease the length of your plan. This is because you have committed your “disposable income” to the creditors for a minimum amount of time while in your plan. If your income goes up, your creditors will get a higher percentage of the debt that you owe them paid back.
100% Plans – if you are in a 100% plan, meaning you will be paying back ALL of your creditors in full through your plan, you CAN pay off your case early by making more payments, but make sure your case is a 100% plan before doing so. This requires you to pay back all of the filed claims in your case before receiving a discharge and is relatively rare.
Think you're done with your Chapter 13 plan? Click here for the final closing procedures.
Attorney Allison Greenlee Korr handles cases in Kalamazoo, Battle Creek and all surrounding counties, call today for a consultation. 269-381-4471
Note that the above should not be construed as legal advice, always speak to your attorney about your specific bankruptcy case.