Chapter 13 bankruptcy is for people with large debt or for companies that need to re-arrange their finances. You have to pay the debt back but you can pay it back, or part of it back, in monthly installments for three to five years. Most of the debt will be pooled together and you make your payment to an individual assigned to your case. This person is your trustee. Your trustee makes sure that your creditors are paid every month.

Can you pay the debt back to your creditors early? If so, how much of the debt must be paid back? Is there a filing fee involved? The background to this is that your attorney, your trustee and you decide a reasonable amount that can be paid back. This amount is based on your monthly expenses and your monthly income.

An example of this is that you have to pay back 80 percent of your debt. You have made good progress and you are on year three of a five-year plan. If you continue to pay as you are, you will be paying back 80 percent with the 20 percent being discharged or eliminated. If you want to end the payments early, you will need to repay the total 100 percent. You may not want to pay the amount back early because, yes, there are penalties.

There is a rational behind the rule: If you are able to make a lump-sum payment then you will have no problem paying the monthly amount. Perhaps you got an inheritance, won the lottery or you got an increase in pay at work. All of your creditors are entitled to their share of this added income.

Looking into this may be a good idea before you do something rash. Talking to an attorney who knows what is what when it comes to bankruptcy laws in New York is a good idea.

Source: Bankrate.com, “Paying off Chapter 13 plan early,” Justin Harelik, accessed Dec. 10, 2015