How to Get Out of Chapter 13 Early

The Four Ways Out of a Chapter 13 Plan

There are four legal ways out of a Chapter 13 plan before its term ends: pay the plan off early through the court, ask for a hardship discharge, convert the case to Chapter 7, or ask the court to dismiss it. Only the first three can end with a discharge of your debts. Dismissal is the fastest exit, and it brings back every debt along with the creditors' right to collect it.

Paying a Chapter 13 Plan Off Early

Paying a Chapter 13 plan off early goes through the bankruptcy court, and the amount you must pay depends on your income and your court. Under §1322(d), a plan for a household at or above the state median family income can run up to 5 years. Below the median, the plan runs 3 years unless the court approves a longer period for cause, and never more than 5.

That 3- or 5-year span is the applicable commitment period in §1325(b)(4). The statute lets a plan run shorter only if it pays all allowed unsecured claims in full over the shorter period. A lump sum that covers every allowed unsecured claim at 100% fits that exception, so it sidesteps the court dispute over partial payoffs.

Paying off early with less than 100% to unsecured creditors is contested, and each court opinion on it binds only its own jurisdiction. In In re Fridley (2007), the Ninth Circuit Bankruptcy Appellate Panel held that such a debtor must use the modification procedure in §1329, and it upheld the refusal of an early discharge. In In re Niday (2013), a bankruptcy court in the Western District of Virginia found that a below-median debtor had no "unqualified right" to pay off early, and that a modification request needed good faith and an evidentiary hearing.

Other courts allow it. In In re Tibbs (2012), a Florida bankruptcy court let debtors pay off a five-year plan about four years early with a lump sum from a family gift, even though unsecured creditors received about 6.8% of their allowed claims. None of the three opinions treats a partial payoff as something you can do by sending the trustee a lump sum.

The Niday opinion also describes In re Murphy, a 2007 Fourth Circuit case. There, refinancing a home mortgage to fund an early payoff did not by itself change the debtor's financial condition enough to support a §1329 modification.

If you cannot raise a lump sum, a §1329 modification can change the plan instead. After confirmation and before the last payment, you can ask for a modification, and so can the trustee or an unsecured creditor. A modification can increase or reduce payments on a class of claims, or extend or reduce the time for those payments. Under §1329(c), a modified plan cannot run past the original 3- or 5-year commitment period, counted from the date the first payment under the original plan was due. The court can approve a longer period for cause, but never past five years from that date.

You can use the free budget calculator to check a lower or higher modified payment against your monthly income before you ask for one.

For an early payoff, work through these steps in order:

1. Get the remaining plan balance in writing from your Chapter 13 trustee, who collects your plan payments and pays your creditors. The federal Chapter 13 overview does not publish a standard payoff procedure.
2. Compare your lump sum, whether it comes from savings, a sale or a refinance, with the total of allowed unsecured claims to see whether it pays them in full.
3. If it falls short, expect a §1329 modification request or a motion to the court, which in Niday required an evidentiary hearing.
4. Finish the personal financial management course before the last payment, because §1328(g)(1) blocks the discharge without it and Rule 1007 makes the certificate due by the date of your last plan payment.
5. Certify that any domestic support obligations are paid, if you have them, and the court grants the discharge as soon as practicable after the last payment.

Chapter 13 Hardship Discharge Requirements

A Chapter 13 hardship discharge lets the court grant a discharge before you finish the plan, but only after confirmation, after notice and a hearing, and only if all three conditions in §1328(b) are met:

1. Your failure to finish the payments is due to circumstances for which you "should not justly be held accountable."
2. The value paid so far on each allowed unsecured claim is at least what that claim would have received if your estate had been liquidated under Chapter 7 on that date.
3. Modifying the plan under §1329 is "not practicable."

The federal courts give one example: an injury or illness that keeps you from earning enough to fund even a modified plan. The third condition means the court looks at a modification first. If a lower or longer plan is practicable, the statute's test is not met.

The hardship discharge is narrower than the discharge you get by finishing the plan. Under §1328(c), it covers only unsecured debts the plan provided for, and it leaves in place long-term debts under §1322(b)(5) and any debt of a kind listed in §523(a). The federal courts' overview says it does not apply to any debt that is nondischargeable in a Chapter 7 case.

The §523(a) list includes domestic support obligations, certain taxes, debts obtained by fraud, and education loans unless repaying them would impose an undue hardship. A full discharge after you complete the plan reaches further. It can cover debts for willful and malicious injury to property and divorce property-settlement debts, for example.

You ask for a hardship discharge by motion to the bankruptcy court, filed through your attorney or with the court directly. Rule 1007 makes your financial management course certificate due no later than the date you file that motion.

A hardship discharge counts as a §1328 discharge if you ever file again. Under §727(a)(9), a Chapter 7 discharge is barred if you received a §1328 discharge in a case commenced within six years before the new petition. The bar does not apply if plan payments reached 100% of allowed unsecured claims. The bar also lifts at 70% if the plan was proposed in good faith and was your best effort. Under §1328(f)(2), a new Chapter 13 discharge is barred if you received a Chapter 13 discharge in a case filed during the 2 years before.

Converting Chapter 13 to Chapter 7

You can convert a Chapter 13 case to Chapter 7 at any time, and §1307(a) makes any waiver of that right unenforceable. Conversion is an order for relief under Chapter 7, but under §348(a) it does not change the date you originally filed. The federal courts charge a $25 fee to convert, and our guide to the cost to file bankruptcy lists the other court fees.

Chapter 7 is a liquidation, where the trustee sells nonexempt property and pays creditors from the proceeds. The federal courts report that most Chapter 7 cases involving individual debtors are no-asset cases, where everything is exempt or covered by valid liens.

The main hurdle is the means test in §707(b), which applies to individuals with primarily consumer debts whose current monthly income is above the state median. Current monthly income is your average income over the six calendar months before the case began, excluding Social Security income. The U.S. Trustee Program publishes the state median income figures and the expense standards used on the means-test forms.

Abuse is presumed when your monthly income after allowed expenses, multiplied by 60, reaches a threshold. The threshold is 25% of your nonpriority unsecured debt, but never less than $10,275 and never more than $17,150. Take $40,000 in nonpriority unsecured debt as an example. A 25% share is $10,000, which is under the floor, so the threshold is $10,275. Divided by 60 months, $10,275 is $171.25 a month. In that example, $171.25 a month or more left after allowed expenses triggers the presumption, which the federal courts say can be rebutted only by special circumstances.

If your household income is at or below the state median, §707(b)(7)(A) bars anyone from filing a means-test motion against you.

Property rules depend on good faith. In a good-faith conversion, §348(f)(1)(A) limits the Chapter 7 estate to property of the estate as of the original filing date that you still have on the conversion date. In a bad-faith conversion, §348(f)(2) uses the estate as of the conversion date instead.

Chapter 13 valuations of your property and secured claims do not carry over into Chapter 7, under §348(f)(1)(B). Our Chapter 7 filing guide covers the Chapter 7 process step by step.

Voluntary vs Involuntary Chapter 13 Dismissal

A Chapter 13 dismissal ends the case without a discharge, so your debts are owed again and the automatic stay against collection ends. Dismissal is voluntary when you ask for it: under §1307(b), the court "shall dismiss" on your request at any time, unless the case came into Chapter 13 by conversion from Chapter 7, 11 or 12. It is involuntary when a creditor or the U.S. trustee asks for it under §1307(c) for cause, such as failing to start timely payments or a material default on a confirmed plan.

Under §349, dismissal returns estate property to whoever held it before the case began. It also preserves your ability to discharge those same debts in a later case, unless the court orders otherwise for cause. If the court dismisses a case before confirming a plan, the trustee may keep some funds for costs but must return the rest, other than amounts already paid or due to creditors.

Once the stay is gone, creditors can restart lawsuits, wage garnishments and payment calls. Our guide on dealing with debt collectors covers the rules collectors must follow when that happens.

Refiling after a dismissal has three limits:

• §109(g) bars a new filing for 180 days in two situations. One is a dismissal for willful failure to obey court orders or to appear. The other is a voluntary dismissal you requested after a creditor filed a motion for relief from the automatic stay.
• Under §362(c)(3), if one prior case pending within the past year was dismissed, the stay in the new case ends on the 30th day. The court can extend it on a showing of good faith, after a hearing completed within those 30 days.
• Under §362(c)(4), if two or more prior cases pending within the past year were dismissed, no stay goes into effect when you file.

Under §362(c)(3)(C), a refiling is presumed not in good faith if the earlier case was dismissed after you failed to perform a confirmed plan. You can rebut that presumption only with clear and convincing evidence.

How Long It Takes to Get Out of Chapter 13

Finishing a Chapter 13 plan takes 3 to 5 years, depending on your income, and the discharge follows the last payment. Payments start within 30 days after filing, even before the court approves the plan. Under §1328(a), the court grants the discharge "as soon as practicable" after the last payment.

Each early exit runs on its own timeline. A hardship discharge can come at any time after confirmation, once the court holds its hearing. After a conversion, Chapter 7's schedule applies, and the federal courts say a Chapter 7 discharge order generally comes 60 to 90 days after the date first set for the meeting of creditors.

A dismissal can end the case fastest, because §1307(b) requires the court to dismiss on your request. It ends with no discharge, so the debts are still yours. An early payoff ends at the discharge, and the wait depends on whether your court allows the payoff and whether it requires a modification hearing.

The statutes behind these four exits do not set how long a Chapter 13 case appears on a credit report. Our guide on how long bankruptcy stays on your credit report covers that timeline. The steps after a discharge are in our guide to rebuilding credit after bankruptcy.

Choosing a Way to Get Out of Chapter 13 Early

The exit that fits depends on whether you can pay, why your income changed, and whether you would now qualify for Chapter 7. Match your situation to the statute that governs it:

• If you can pay every allowed unsecured claim in full, an early payoff fits the §1325(b)(4)(B) exception and ends with the full Chapter 13 discharge.
• If you can pay off early but for less than 100%, the outcome depends on your court, and the request goes through a §1329 modification or a motion.
• If your income dropped for reasons outside your control, a §1329 modification comes first, and a hardship discharge applies only if modification is not practicable.
• If your income dropped and you would now pass the Chapter 7 means test, conversion keeps the case open and can end in a Chapter 7 discharge.
• If you need out regardless of the cost, voluntary dismissal is available, with no discharge and the refiling limits in §109(g) and §362(c).

A hardship discharge needs a confirmed plan, because §1328(b) applies only after confirmation. Conversion and dismissal are available at any time under §1307(a) and (b). If you have not filed yet, our Chapter 7 vs Chapter 13 comparison is the better starting point. A ruling from your own district or circuit on partial early payoffs would change the payoff analysis, because Fridley, Niday and Tibbs bind only their own courts.

Courts, trustees and local rules vary. A bankruptcy attorney, a legal-aid office or a nonprofit credit counselor from the U.S. Trustee Program's approved agency list can apply these rules to your case.

Before you choose how to get out of Chapter 13 early, write down your remaining plan balance, your last six months of income and any pending creditor motions.

Frequently asked questions