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Why finish a Chapter 13 plan early?

On Behalf of | Nov 23, 2022 | Bankruptcy |

Chapter 13 could be a preferable bankruptcy category over Chapter 7. However, some may move from Chapter 13 to Chapter 7. Other Virginia debtors might wish to leave Chapter 13 early altogether.

Chapter 7 and Chapter 13

Chapter 7 and Chapter 13 are different from one another. Chapter 7 bankruptcy focuses on liquidation to pay creditors, with some debt facing a discharge. Passing a means test to establish a dire debt ratio and other factors may qualify someone for Chapter 7. If they don’t qualify, they could explore Chapter 13 options.

Chapter 13 bankruptcy is sometimes referred to as wage earner bankruptcy because most people seeking bankruptcy protection under this chapter have a steady source of income. A portion of their income goes toward a three or five-year repayment plan to cover some of their debt.

Those who miss payments when seeking Chapter 13 protection may face a bankruptcy dismissal. Once the court dismisses the bankruptcy, the debtor may discover creditors resume collection actions against them. Such measures could even include lawsuits.

However, not everyone can keep up with their Chapter 13 payments because their financial situation might worsen. Namely, debtors could lose their job. In such cases, they may seek Chapter 7 protections based on the new circumstances.

Exiting Chapter 13 early

A hardship discharge could address problems someone faces while struggling with Chapter 13 payments. And then there’s another scenario the Chapter 13 filer may experience: a positive reversal of their financial situation. The individual might receive a substantial amount of money that allows them to pay off their payment plan.

Those intending to leave Chapter 13 must apply for an early discharge. Several conditions apply, and debtors must pay their debts in full. So, collection action may resume on unpaid debts.