Early Loan Payoff in Chapter 13

[asmoothj24]

We are 2 years into a 5 year Chapter 13 plan and might be able to payoff our car loans, which are paid outside of the plan, early this year for one and mid-next year for the other. Is this a wise thing to do? We are not in a 100% payback plan and would be paying off about 3k for the 1st car and 7k for the second to free up the $400 we pay for each car. We would be using savings to payoff the loans but do not want to open a can of worms with the trustee.
Thanks

[kornellred]

Why don't you just keep the money in the bank that you would use for paying off the car loans? It's almost the same as freeing up the $400 per month, which is a significant chunk of change in terms of disposable monthly income. After you deplete your savings, what would you do with the extra $400 per month - spend it?

[LadyInTheRed]

I bet asmoothj24 is paying more interest on the car loans than the money in savings is earning, so paying the loans off early may make financial sense. However, having a large cash savings is a big advantage in a Chap 13. A lot can happen in the next 3 years that could make you wish you hadn't paid off the cars.

Other than that, since you are in a 100% plan, paying off the cars early may not be a problem. However, it is possible that the trustee could try to increase your plan payment if he/she sees you have more disposible income. That way, if you have a decrease in income before you complete your plan and have to modify your plan to pay less than 100% to unsecured creditors, the trustee will have gotten the money for creditors while your income was high. As with any significant financial moves during a 13, check with your attorney first.

[TheBajan]

Lady, his post states that he is NOT in a 100% payoff to plan so I'm thinking the trustee would up his payments and it would just feed the unsecured creditors. Isn't that right?

[LadyInTheRed]

Lady, his post states that he is NOT in a 100% payoff to plan so I'm thinking the trustee would up his payments and it would just feed the unsecured creditors. Isn't that right?

Thanks for catching that! That's the second time in the last couple of weeks I've misread the exact same phrase!

Yes, if the trustee sees there is aditional disposible income and successfully petitions for an increase in a higher plan payment, the extra money would go to unsecured creditors. Whether the trustee would file a petition, depends on the trustee. Whether a petition is successul, will probably depend on how the OP managed to save that money. Was it exempt cash at the time of filing? Was there an increase in income or decrease in expenses? Probably best not to rock the boat. The OP should definitely check with his attorney before doing anything.

[asmoothj24]

Thanks guys for the advice, the savings have come primarily from raises (nothing over 10%) and major expenses such as childcare falling off as the kids entered kindergarten. We are in a step up plan based on when our car payments were supposed to end, I believe out attorney split the payments for the 1st car by 50% to plan, 50% saving for a new car. The 2nd car payment would not be ending before the 5 year plan term. We do not want to rock the boat as our plan payments are really low based on our income and there are no stipulations on our confirmation order. However, I feel bad paying the interest when we have cash sitting in a savings account earning a measly .2%. Does the lender have to report the loan as paid off to the trustee?

[forgotten]

Would you rather risk a plan modification (+400/mo for the cars, +the money you are no longer paying to childcare, +raises) or the money that is going to interest? Personally, I would stay under the radar and just keep paying everything as agreed.

Edit: I am paying $1000/mo to unsecured in my plan. My wife has a lower paying job, and we had a chilld since we filed. Running the numbers I would still rather stay under the radar and not mention it. That should tell you what my theroy is.

[LadyInTheRed]

Yeah, I wouldn't rock the boat. Paying interest sucks, but that is what you always intended to do anyway. Keep saving. You'll be glad you did when the unexepected happens in the next 3 years. If nothing happens, that savings will make your fresh start even fresher.

[asmoothj24]

Makes sense, Thanks again for the great advice all! Love this forum!

[karm43]

Can a trustee touch your savings during a chap 13? Will he look? Just wondering.