How does a Chapter 13 “adjustment of debts” case get finished?
This blog post is the last in a series about how Chapter 13 actually works. The main point of this series has been to help you make a good decision about whether this powerful and flexible option is appropriate for you. If you haven’t already done so, please look through the earlier blog posts here on this website.
Got to Get to the Finish Line
Be aware that under Chapter 13, you must finish it successfully to get what one of its most important benefits—the discharge (legal write-off)—of your debts. Chapter 13 cases in which all debts are paid in full are rare. In most cases only a portion of the debts are paid, and then the remaining amounts are discharged. But this discharge only occurs at the very end of the case.
In virtually all cases—even in those in which a large percentage of the debts are being paid—completing it successfully is very important for the following reasons:
- A completed Chapter 13 case is better on your credit record than one that was not completed. How much better depends on all the circumstances of the case—such as whether you continued paying a mortgage or vehicle loan according to their terms during the case. After the years of effort making payments on a Chapter 13 plan, whenever possible you want to end it with a positive credit record event instead of a negative one.
- Interest, late fees and other charges can continue to accrue on your debts behind the scene during your Chapter 13 case, costs that you almost never need to pay as long as you finish successfully and discharge the debt. But if you do not receive that discharge, you would be liable for any such additions to your debts.
- It’s not unusual for a creditor or two to neglect to formally ask to be paid during the course of your Chapter 13 case, and therefore would receive nothing during the case. Those entire debts are discharged at the end of the case. But without a discharge, those creditors’ rights against you come back fully into effect, as if you had never filed your Chapter 13 case.
What the Finish Line Looks Like
So you want to get to the end of your Chapter 13 case. Here is what its last few steps look like:
- You finish paying into your court-approved plan the total amount required.
- You usually actually end up temporarily paying an extra month or two beyond the required amount, until you are told to stop, for the reasons stated below.
- Your trustee audits the case to determine if you fulfilled all the plan’s requirements and to make sure that his or her office distributed the correct amounts as provided under the plan.
- The trustee’s audit and the rest of the closing procedure is often not finished by the time your next month’s plan payment is due, which is why you must keep on paying it. Plus the audit might show that you need to pay more than you thought, so continuing to pay can actually avoid delays in the process.
- You may need to demonstrate that you have met all the legal requirements.
- The trustee’s audit reviews, among other requirements, whether you have (a) completed the mandatory debtor education course (which you ought to do shortly after your case is filed), (b) kept current on any child/spousal support obligations, and (c) sent the trustee copies of annual tax returns.
- The trustee reports to the bankruptcy court and your creditors that the case appears ready for discharge.
- Creditors are given the opportunity to object on the grounds that the trustee did not follow the terms of the plan, but this virtually never happens.
- If no objections are filed, the trustee sends you a refund of the amount you overpaid.
- Make sure that you inform your Chapter 13 trustee (usually through your attorney) of any changes in your address throughout the case so that you receive important mailings, including this refund check.
- The discharge order is mailed to you, your attorney, and your creditors, and then the case is closed quickly after that.
- Make sure you keep your copy of the discharge order, which is your proof that you successfully finished your Chapter 13 case.