The economy has been struggling over the past year, but the pain is not spread equally. A lot of Maryland residents have been out of work, while investors and others have been making huge gains. In this kind of situation, personal finances can change and the best laid plans can quickly unravel.
If you entered this economic crisis while you were in the middle of a Chapter 13 repayment plan, you may find you are no longer able to keep up with payments. Alternatively, you might have got lucky and found you are able to pay off your debts more quickly than you anticipated.
In either situation, you may ask if you can exit a Chapter 13 plan early? The answer is yes, but the details are important.
Exiting Chapter 13
Chapter 13 is a form of personal bankruptcy that protects people from their creditors while they work through a repayment plan. The plan takes between 3-5 years to complete. After that time, the person emerges from bankruptcy with a fresh start on their finances.
Because Chapter 13 requires repayment of all or part of the person’s debt over a period of time, this form of bankruptcy is best for people who have a job or other source of regular income. If, during the 3-5-year period, the person gets a big inheritance or other financial windfall, it is relatively straightforward for them to pay off their remaining debt and leave Chapter 13 early.
The more difficult scenario occurs if the person loses their income during the repayment period. In such a case, the debtor can request a hardship discharge from Chapter 13. The court can grant this discharge, letting the debtor out of the repayment plan, but creditors will not let go easily.
Protection from creditors
Perhaps the key advantage to bankruptcy is the protection it offers from creditors. When a person files for bankruptcy, the court issues a stay on all collection efforts. This ends the scary phone calls and letters from debt collectors as long as the debtor is in bankruptcy protection. But once the person leaves bankruptcy protection, if they have any remaining debts, those collection efforts will begin again.
For this reason, debtors should think long and hard before exiting bankruptcy protection. People who are struggling with debt can speak to a skilled professional about their options.