Chapter 13 bankruptcy offers a way for people to restructure their debts and create a manageable repayment plan. In Maryland, as in other states, it is possible to finish a Chapter 13 bankruptcy repayment plan early under certain conditions.
Understanding these conditions can help you achieve financial freedom sooner than you expected.
Requirements for early completion
To finish a Chapter 13 repayment plan early, pay all priority debts in full. Priority debts include obligations such as taxes, child support and alimony. You must also pay secured debts, such as mortgage arrears, as per the plan’s terms. Only after these debts are satisfied can you consider early completion.
Full repayment of unsecured debts
Another requirement for early completion is the full repayment of unsecured debts. Unsecured debts include credit card balances, medical bills and personal loans. The original plan may have provided for partial repayment of these debts. Early completion demands full repayment. This can be a significant challenge for many debtors, as unsecured debts can be substantial.
Discharge of debts through a lump sum payment
One common method to finish a Chapter 13 plan early is by making a lump sum payment. This payment must cover all remaining debts under the plan. Debtors may obtain the necessary funds through various means, such as selling assets, receiving an inheritance or borrowing from family or friends. The bankruptcy court must approve the lump sum payment to ensure it satisfies the plan’s terms.
Impact on credit score
Completing a Chapter 13 bankruptcy plan early can positively impact a debtor’s credit score. The average credit score in Maryland is 716.
While the bankruptcy filing will still appear on the credit report for seven years, creditors may view the early completion favorably. This can lead to improved creditworthiness and better financial opportunities in the future.
Court approval and final discharge
Early completion of a Chapter 13 plan requires court approval. The debtor must file a motion with the bankruptcy court, demonstrating payment of all debts according to the plan. Once the court is satisfied, it will issue a discharge order.
Overall, finishing a Chapter 13 bankruptcy repayment plan early is possible. It does require careful planning and financial discipline.
