Believe it or not, we have had several clients who have filed bankruptcy and then found themselves in financial excess. When this happens, clients often ask the question “can I pay off my bankruptcy and be discharged faster?”
If you’re in the middle of a bankruptcy, and your financial picture starts looking rosy, it’s understandable that you’d want to pay off your repayment plan early—but don’t count on being let out of your plan. In fact, it’s more likely that your monthly payment will increase because your creditors are entitled to all of your discretionary income for the duration of your repayment period.
If your income increases but your expenses stay the same, your disposable income—and your plan payment—will increase. You have an obligation to report any increase in income to the bankruptcy trustee.
If you do want to pay off your plan early, you must notify your creditors and your bankruptcy trustee. Creditors and your bankruptcy trustee will have the opportunity to object to your early payoff—and you should expect them to do so.
Your creditors will argue that the funds you intend to use to pay off the plan (employment bonus, inheritance) should be used to increase your payment to creditors, not to shorten the duration of your bankruptcy. They will further argue that if you’re allowed to pay off your debt early, they will lose the benefit of any future increase in your disposable income from a pay raise, bonus, inheritance, and the like, or a decrease in expenses over the life of your bankruptcy. If the court agrees, the court will deny the early payoff and likely require you to increase your payments to reflect your additional income.
If you find yourself in this situation, it’s best to contact your bankruptcy trustee to get their advice.