Chapter 13 bankruptcy requires that you make a monthly payment to your creditors over a three to five year period. Before we even file your chapter 13 bankruptcy case with the court I will work with you to put together your chapter 13 plan. In this plan you will be required to make a monthly payment to a bankruptcy trustee who will then distribute that money to your creditors. At the end of your chapter 13 bankruptcy any monies that are still owing to your creditors will be discharged (or eliminated).
The amount you pay each month will depend on your monthly disposable income – basically how much money you have left over after you pay all your monthly bills. This is a set number that typically doesn’t change unless your income or expenses change.
Many people wonder if it is possible to loan some money from a family member and pay off the chapter 13 bankruptcy early rather than going through the entire five year process.
In most cases the answer is no. Here’s why – the chapter 13 bankruptcy requires you to hand over all of your monthly disposable income. In the court’s eyes, if you come into a bunch of money, you need to hand it over and let the trustee pay off your creditors.
If, by chance, there is enough money to pay off all of your unsecured creditors (i.e., credit cards, medical bills, etc.) in full, then the answer changes. If all of your unsecured creditors get paid in full with the loaned money then you can complete your case early.
If the money your are loaning would only allow you to pay off the amount your creditors would receive through your plan, then no, you have to continue to pay until either all five year’s worth of payments have been made or you pay off everyone in full.
If you are wondering why you would file a chapter 13 bankruptcy (rather than a chapter 7), you can read more about that by clicking HERE.