Kentucky Bankruptcy Law

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Paying off a Chapter 13 plan early

One of my clients recently asked about selling a vehicle and using the proceeds to pay off the plan early. Because they had been paying the car off through the plan, they had reduced the principal considerably. However, it just was not that simple. The only funds that can be used to pay off a Chapter 13 earlier are exempt funds. The car did have some equity at the start of the case so there was approximately $600.00 exempt equity in the vehicle. But, from there it gets tricky.

First of all, during the Chapter 13, all the property the Debtors had at the start of the bankruptcy remain assets of the estate. The Chapter 13 trustee does not routinely “abandon” property of the estate the way that Chapter 7 trustees do. So, one must file a motion with the court to sell property. My clients could have done this easily enough, but they would also have to successfully amend the exemptions to cover all the equity that now existed, which is problematic in and of itself.

The most common way Chapter 13s get paid off early are from withdrawals from retirement accounts that were exempted at the beginning of the bankruptcy.

 

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August 20, 2013 Posted by | Bankruptcy, Chapter 13, Exemptions, Plan, Plan payments | , , , , , | 1 Comment