Paying off debt outside Chap 13

[SAL9000]

Hello all,

I am new to the forum and have been wondering about debt we pay outside our Chapter 13 plan. We have been able to save up some money during our plan and I was wondering if we should try to start paying off the debt?

My concern is if our trustee would reevaluate our disposable income at some point and increase our monthly payment. We are in a better place now and have started listening to Dave Ramsey and are thinking of using the debt snowball to pay off our cars and 401k loans. Should we pay them off early or just keep saving cash and pay them off over time.

Any advice would be greatly appreciated.

Sal

[justbroke]

The only debt you should have is the debt that is included in your plan. Since you are in a Chapter 13 already, the Dave Ramsey way of paying off debt (e.g. snowball payoffs) should not apply. Unless you're in a 100% plan, paying things early may just cause your plan base to increase and to bring you towards and/or to a 100% plan.

If you have extra money in a Chapter 13, rejoice. Save the money. Put it in a rainy day fund. Do not use any of it and build a 6-month reserve (that's 6-months of mortgage/rent payments, food, clothing, and other expenses). Unless and until you have 6-months of ability to house, cloth, feed and provide transportation for yourself, there is no "extra"money in a Chapter 13.

The 6-month reserve is more important because the Chapter 13 plan protects you and gives you nice fixed payments.

[shipo]

I had a few extra shekels to rub together about half way through my Chapter 13 and I am so-so glad I didn't do anything dumb like trying to pay some things off early. I say "dumb" because my car went Tango Uniform shortly thereafter, and I needed to pay cash for a new(er) car to tide me over until my bankruptcy ended. As justbroke said, put the money in a rainy day fund; since you have no access to new credit for the duration, you never know when you might need that money.

[justbroke]

Shekels... ha! I guess that's better than having a few pence to rub together.

[SAL9000]

Ok that makes sense thanks for the advice. Yes all that debt is in the plan we just pay it directly to the creditors outside our monthly Chap 13 payment. We will just continue to budget and save as much as we can and let those debts just be paid off over time.

One car will be paid off next year and the other we bought right before we filed so we would have a reliable car for a while. We only have a month of so of expenses saved now so we will use the 6 months as a good goal to strive for.

[Carmella]

Good points about saving money during Chapter 13. It's making me think because in October our mortgage will be paid off. It is just under $1,000 a month (it just increased due to escrow/taxes, it was closer to $900 until THIS month). Our taxes would be approximately $200 a month that we need to set aside and that leaves us with around $700 a month which we intended to use to pay off the HEL and have it paid in full by the time we are out of bankruptcy. I have gone back and forth should we put the whole $700 in or part of it and what is the amount to put in to get it paid off in 2 yrs. I settled around $500 a month because we are always robbing Peter to pay Paul even now. I know which bills I can pay late with the least bad effects, using grace periods and late utility bills. I really wish that Chapter 13 gave us enough to be able to pay bills on time and we do not have extraordinary high utilities or car payments.

We do need some sort of emergency account since we do not have any back up and some months we are living paycheck to paycheck. I was hoping to start setting money aside and then Covid19 happened and my second job has no work (hoping maybe by mid summer time I will get some work on that job).

We could put off paying the HEL, but I really really want it paid off as soon as we can. Maybe I could pay a little extra and bank some of that money and then if all is well I can pay off the HEL prior to the end of bankruptcy with a larger last payment.

It's important to us to get it paid off since my husband will be retiring about 2 yrs after BK is over.

[shipo]

Carmella, in your situation right now, cash is king; pay your mortgage, HELOC, and all of your bills at the minimum payable amount and stash the rest in savings.

[sophieanne]

Carmella - I have to agree with shipo. Maybe pay what you have to..put the rest in savings and when things turn around you can take the savings and pay off the heloc. (Just put it away and don't think about it, unless there's a true emergency).

[Barbisi]

Carmella, you are so lucky to have a $1000 mortgage- ours is more than double that ( more than $2300 now plus $75 per month solar panel lease = almost $2400!). The arrogance of these Colorado realtors is galling - they are boasting because of the Covid-19 induced lock down, there is so much "pent up demand" for buyers that this state can't be affected and they're off to another record setting year ! They claim no recession or depression can "touch" this area because every one wants to move here no matter how unreasonable it is!
Are your regions suffering from this illusion of grandeur? Does every one where you live believe this health nightmare will boost your home sales economy?

[Carmella]

Barbisi Yeah we did something right over the years. Of course location is part of it because we could have qualified to buy a larger house in a more expensive neighborhood, but we bought a modest house in a nice neighborhood which is close to the city and not far out into suburbia, they call it an "inner ring" suburb. My only regret is we didn't buy a house slightly more expensive (but not enough to break the bank at the time) which had a finished basement so we'd have more liveable space. Of course we thought we'd have the funds to fix it up ourselves, but that's when life changed with a 25% pay cut that started our path to where we are today.

Oh well.

A friend of mine was recently pitched to buy solar panels. It sounds like a real gimmick, at least what they are trying to sell around here. I think you'd need the right house/location and income to experiment with that type of energy at this point in time. They were trying to tell her it would be cheaper than having our regular electricity, well it was not by the time she saw the fees and price increases and still having to have electricity. It really doesn't sound feasible or affordable for people that don't have a large , very large, amount of disposable income.

Another friend of mine has a kid who moves to Colorado and works the ski slopes/resorts when they are in season, but he can't afford to live there off season and he's back home. He loves that lifestyle, but he could never sustain it. It sounds like there's really no work he can do when the resorts are not busy. I imagine tourism being down would hurt parts of Colorado. I think he might get reasonable room/board at the resort as a perk for the job when it's in season.

Thanks for the comments everyone. I think I will put away money and pay maybe $200-300 on the HELOC since the minimum isn't knocking down the principal, plus the $200 for taxes. That leaves around $500 to bank. Although for the first few months I might use that $500 on the income tax since there's still going to be a balance because Murphy has decided to visit this week. I don't have time to get into that at the moment.

I do want to get the HELOC paid off before Chapter 13 ends because I am paranoid after being late a few times on the payment that the bank might get nasty after we are no longer protected by Chapter 13. After the regular mortgage is paid off I don't think I will have any trouble making on time payments to the HELOC so maybe I need to let that worry go. It will be around 2.5 yrs or more of on time payments by that point!

[flashoflight]

Carmella, you are so lucky to have a $1000 mortgage- ours is more than double that ( more than $2300 now plus $75 per month solar panel lease = almost $2400!).

There is a small bright side to a big mortgage. It reduced the portion of the plan payment that would otherwise go to unsecured creditors. Paying practically anyone else including the solar panel lease is better than paying the unsecureds. Of course the mortgage and lease are not discharged once the 13 is complete, so yeah it stinks to have a big mortgage and that solar lease after the 13 vs a 7 where the personal liability goes away so overall I agree.