Finishing a Chapter 13 case successfully is a big deal. It’s rewarding financially and emotionally. Here’s how it happens.
The End-of-Chapter 13 Benefits
Just because of the way Chapter 13 works, a lot of its benefit comes near or at its very end. For example:
- “General unsecured debts”: In most cases most of the debts are neither secured nor “priority,” meaning they are “general unsecured” ones. Also, in most cases a major portion of those debts are not paid through your Chapter 13 plan but rather discharged—legally written off forever. But that doesn’t happen until you successfully finish the case.
- “Priority” income tax debts: You have to pay these taxes (usually because they too new to discharge) through your Chapter 13 plan. But you usually don’t have to pay interest or any ongoing penalties on these taxes. However, if you don’t successfully finish your case that interest and those penalties would be imposed again. Once you finish the case, that interest and those penalties disappear.
- “Stripped” second/third mortgage: Chapter 13 may give you the power to turn a second or third mortgage into an unsecured debt. This “stripping” of the mortgage from your home gives you tremendous immediate and long-term financial savings. But this “stripping” requires you to successfully finish the case.
- Curing first mortgage arrearage: If you are using Chapter 13 to stretch out your payments for catching up on your mortgage, you may well not catch up until close to the end of your payment plan. Under Chapter 13 your mortgage lender is prevented from foreclosing while you are under bankruptcy protection. But if your case gets dismissed before you completely catch up on the mortgage, your lender could start/resume foreclosure. You need to finish your case to ensure that you get current on your mortgage.
How Do You Know How Much Longer Your Case Needs to Go?
In some Chapter 13 cases you know exactly how many months it is supposed to take. Other cases are less clear. That’s because cases can be affected by events that unfold during the years that a case is active.
For example, your Chapter 13 plan may require you to catch up on your “priority” taxes or unpaid child support. You may not know precisely how much you owe in taxes or support at the time your bankruptcy lawyer calculates the length of your plan. Once the exact amount becomes known that may extend or shorten your case. That may be true of certain other kinds of debts, like the arrearage on a home mortgage that you’re curing.
Also, changes in your income and/or expenses can result in a plan “modification,” again potentially extending or shortening it.
So how do you know how long your case has to go while you are in the midst of it?
Your lawyer likely has the information to either very closely estimate or tell you exactly how long you have. He and she could also ask the Chapter 13 trustee to run this calculation. The trustee is likely set up to do that efficiently. (See our most recent blog post about the roles of this trustee.)
Case Completion Events
Once you’ve finished paying all you are required to pay into your Chapter 13 plan, the trustee tells you and your lawyer that you have done so. Your lawyer gets the opportunity for a final review of your case, to verify that everything went as it should.
Once the trustee is satisfied that you’re done, he or she informs the bankruptcy court. Then the court enters a discharge order. That discharges all (or virtually) all the debts that you have not paid through your payment plan. If your plan says you were to pay 20% of your “general unsecured debts,” the remaining 80% would be discharged. Unpaid income tax interest and penalties would be discharged. These creditors could never chase you for these debts. All of the other benefits of Chapter 13 would get finalized.
Simultaneous with the discharge order, the court would order the closure of your case.
You’d be done. It would make perfect sense for you to have a quiet little party to reward yourself for having successfully completed your case!