In a word, yes, you can pay off a Chapter 13 early. But (you knew there was a “but,” didn’t you?) there’s a right way and a wrong way to do it. If you want to make an extra payment (or a partial payment) from time to time, that’s fine. In fact, it’s a good idea. If you plan to make a large, lump sum payment, you should consult your attorney first.
The first question your attorney will ask you (and so will the trustee if you don’t ask your attorney first) is where the money is coming from to pay off the Chapter 13. There are a couple of reasons why the source of the funds is important. If the money is coming from a loan (even a loan from a family member) you need to seek court approval of that borrowing first. The same is true for other types of lump sum payments, like the settlement of a lawsuit or worker’s compensation claim. The source of the funds is also inportant to determine whether the amount you proposed to pay to your creditors in the first place is still fair.
Your attorney will also be able to tell you approximately how much it will take to pay off your plan. It can sometimes be a little more, or a little less, than the base amount (figured by multiplying your monthly payment by the number of months your plan is supposed to last).
I have, on occasion, gotten a note from a Chapter 13, politely asking me to explain the source of a large payment one of my clients has sent her. On one such occasion, when I asked the client about it, the client said he didn’t want to bother me. I appreciate the consideration, but I’d much rather be bothered beforehand, than try to fix it later.
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Last modified: October 13, 2007