Chapter 13 payoff Questions

[manicmike]

Hi there, so we have been in our Chapter 13 for about two years. We are scheduled for another 31 months or so. We are paying back about 83%. I have been told I'm getting a pretty large raise. With this raise, I could put a big dent in our plan. However, I understand that we would have to pay 100% back in order to finish early. I have a couple of questions about that.

1.So for example, If we just start mailing the trustee money every month, and we hit that 83%, is there any chance the trustee will just close out the case? Or if we hit the 83% they will continue to draft my paycheck until we reach 100%?

2. Of the $58000 (that's 100%) that we owe, $40,000 are federal student loans. I know student loans are not dischargeable so...could we not pay 100% of everything else and be done with the BK early? We will have student loans left to pay anyway at discharge, as the trustee is only paying them 83% too with no discharge of those loans to come.

We could end it in like 16 months with the raise at 100% including the student loans, or do we keep going for the 31 months and keep the raise in our pockets?

Thanks in advance
Mike

[shipo]

Hi there, so we have been in our Chapter 13 for about two years. We are scheduled for another 31 months or so. We are paying back about 83%. I have been told I'm getting a pretty large raise. With this raise, I could put a big dent in our plan. However, I understand that we would have to pay 100% back in order to finish early. I have a couple of questions about that.

1.So for example, If we just start mailing the trustee money every month, and we hit that 83%, is there any chance the trustee will just close out the case? Or if we hit the 83% they will continue to draft my paycheck until we reach 100%?

2. Of the $58000 (that's 100%) that we owe, $40,000 are federal student loans. I know student loans are not dischargeable so...could we not pay 100% of everything else and be done with the BK early? We will have student loans left to pay anyway at discharge, as the trustee is only paying them 83% too with no discharge of those loans to come.

We could end it in like 16 months with the raise at 100% including the student loans, or do we keep going for the 31 months and keep the raise in our pockets?

Thanks in advance
Mike

A few comments:

1. I was explicitly told by attorney to NEVER pay more than the plan amount in any given month.
2. There is no real benefit to paying off your outstanding debt early (errr, except for getting a credit card and starting rebuilding your credit), however, if you really want to do that, I recommend you contact your attorney and let him or her know your plan.
3. In your shoes I'd opt to dump most, or even all of the increase in income into my 401K; this will do two things, give you a jump start on your retirement, and it will effectively keep your net income fairly flat.

[Manup]

@manicmike that is a great problem to have. If you are receiving a significant increase, you need to let your attorney know. Hiding money from the trustee probably wouldn't workout very well. As Shipo stated you might be able to put more away in a 401k. Regardless of all that, it sounds like you will be able to finish early and get back on track. Good luck!

[shipo]

One interesting aspect regarding funding one's 401K as it relates to the Trustee seeing your tax returns (assuming you are required to provide them); one's gross income is not listed anywhere on the tax return, only the net taxable, so moving as much money into pre-tax accounts like 401Ks and HSAs effectively prevents the Trustee from knowing about any significant increases in income (obviously only to a point as there are funding limits for both).

Over the course of my Chapter 13 my income increased nearly 40%, however, my taxable income reported on my tax return 1040 showed me making something like $4,000 less than my base year.

[D19S59J]

manicmike Your situation is very similar to my own. I'm curious what you decided to do.

[shipo]

manicmike Your situation is very similar to my own. I'm curious what you decided to do.

I wouldn't count on a response, manicmike hasn't logged in since April.

If you have specific questions, please ask and the rest of us will try and answer.

[justbroke]

Actually, please open a new thread for this very reason.