Bankruptcy allows people to seek relief from large amounts of debt. If you’re going through Chapter 13 bankruptcy in Tennessee, it’s understandable to want this burden off your shoulders right away. That said, paying off your bankruptcy plan might not be as smart as you think.
How bankruptcy plans work
Whether you refer to it as a wage earner’s plan or a Chapter 13 bankruptcy plan, this type of legal proceeding lets those in debt repay what they owe based on their income. Chapter 13 bankruptcy is available to any U.S. resident provided their debts are less than $2,750,000 when they filed for bankruptcy.
What happens when you get out of Chapter 13 bankruptcy early?
In life, people often hear about the benefits of paying off homes, loans, and similar debts in full whenever possible. Initially, getting out of bankruptcy as fast as possible seems like the right thing to do. But this choice can lead to two unwanted outcomes.
First, paying your bankruptcy debt in full means not qualifying for partial debt forgiveness. Most people who complete these plans have portions of their debts resolved. When you pay all your debt at once, you lose the option for any partial debt removal.
Second, companies or other parties you owe money to aren’t as willing to forgive your debt after learning about your new financial gain. Creditors you owe money to must agree to a lump-sum payment. If they don’t, you could face more expensive monthly payments for being so forthcoming about how much money you now have.
Chapter 13 bankruptcy takes most people three to five years to complete. Unless, for some reason, you must rebuild your credit or gain full access to your money, it’s best to stick with your monthly payments until you’re out of bankruptcy.