There are many reasons that people fall into debt, but fewer solutions for true debt relief. When it comes to bankruptcy, Maryland consumers have two main options, either Chapter 7 or Chapter 13.
While many are forced to file for liquidation bankruptcy under Chapter 7, others want to find a way to repay their debts over time through reorganization under Chapter 13.
The advantages of Chapter 13
Also known as “a wage earner’s plan”, Chapter 13 bankruptcy allows people who have a regular source of income to restructure their debt without forfeiting certain assets.
Some secured debt, such as mortgage payments or auto loans, can be paid off without losing your home or vehicle. In some cases, the repayment amount is lower than the initial payment. Chapter 13 also shields co-signers from liability.
This can be a viable option as long as you make all of your payments on time.
But, what if you want to pay them off early? Is that possible or even a good idea?
Why you should avoid an early repayment
Few people want the stress and hassle of debt. It’s typical to want to pay off your mortgage and get a clear title to your home when there are only a few payments left. Those with the means will frequently eliminate their credit card balance each month.
Those are smart, money-saving tactics that provide you with better monthly cashflow and more disposable income.
However, this is not the case with early debt repayment under Chapter 13. Doing so changes the terms of your debt resettlement plan. In short, you would owe the full original balance of the debt rather than the reduced amount agreed upon by you and your creditors.
Filing for Chapter 13 bankruptcy protection gives you some breathing space while allowing you to honor your obligations. Even if you inherit a windfall, it’s still better to stick to the terms of your repayment agreement and focus on creating financial security in the future instead.