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Staying the course during Chapter 13 bankruptcy

Some common advice from many experts regarding debt is that it pays to get ahead of the game. While it's true with many loans and accounts that you can save interest and fees by paying off loans early, the same isn't necessarily true when it comes to a Chapter 13 bankruptcy arrangement. While every case is unique, making it a good idea to seek professional advice about bankruptcy and debt situations, most people will save the most by sticking to a Chapter 13 repayment plan.

In Chapter 13 bankruptcy, a person works with creditors through the legal process to create a debt restructuring. Often, that process includes creditors agreeing to accept less than the total amount owed in exchange for discharging debt. One woman, for example, had a five-year plan to pay back 80 percent of debt owed to a number of creditors. The rest of her total debt -- 20 percent -- would be discharged if she made those payments.

In the same woman's case, however, she might end up paying back 100 percent of the debt if she decided to pay the entire amount off early. A Bankrate adviser noted that this might happen because the court and creditors might believe that she has the ability to keep paying the monthly payments until 100 percent was paid off if she suddenly had the ability to come up with a large lump sum of money.

When dealing with bankruptcies, you might not realize the financial and legal consequences of actions -- whether those actions occur before, during or after the bankruptcy process. Working with someone who understands the process helps you ensure the best possible outcome.

Source: Bankrate, "Paying off Chapter 13 plan early," Justin Harelik, accessed Sep. 22, 2015

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  • NACA | National Association of Consumer Advocates
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