Home Equity to pay off ch 13

[Iv3rpol24]

Hello all,

-I am currently on my 3rd year CH 13 never have missed/late paymets
-mortgage is always paid on time

My question is, can I use home equity loan to pay off the remaining balance of my ch 13 to be discharge early? Anybody in here have done this? If so, what is the process?

Thank you all in adavanced!

[shipo]

A few thoughts in no particular order:

• If you are not in a 100% plan, then this is a very bad idea because Trustee will most likely take the lump sum payment, give it to your creditors, and then still require you to pay every month for the duration of your plan.
• Even if you are in a 100% plan, I don't see the benefit, all you'll be doing is substituting one (interest free) payment for a monthly payment against a balance which does accrue interest
• Regardless of the percentage of your plan, and regardless of whether your Trustee allows you to pay a lump sum in lieu of continued monthly payments, the bankruptcy on your credit reports will not drop off a day earlier

My advice would be to simply suck it up, make your remaining payments, and let the bankruptcy get discharged on schedule; better that than poking the bear (your Trustee) and ending up paying more to the Trustee than your plan currently calls for. FWIW, due to a promotion and significant raise, I could have paid my Chapter 13 off in my third year; my attorney strongly recommended I keep my mouth zipped and ride it out; I'm so glad I did.

[Iv3rpol24]

A few thoughts in no particular order:

• If you are not in a 100% plan, then this is a very bad idea because Trustee will most likely take the lump sum payment, give it to your creditors, and then still require you to pay every month for the duration of your plan.
• Even if you are in a 100% plan, I don't see the benefit, all you'll be doing is substituting one (interest free) payment for a monthly payment against a balance which does accrue interest
• Regardless of the percentage of your plan, and regardless of whether your Trustee allows you to pay a lump sum in lieu of continued monthly payments, the bankruptcy on your credit reports will not drop off a day earlier

My advice would be to simply suck it up, make your remaining payments, and let the bankruptcy get discharged on schedule; better that than poking the bear (your Trustee) and ending up paying more to the Trustee than your plan currently calls for. FWIW, due to a promotion and significant raise, I could have paid my Chapter 13 off in my third year; my attorney strongly recommended I keep my mouth zipped and ride it out; I'm so glad I did.

Thank you so much,

[justbroke]

I would have written the same thing that shipo wrote. Especially given today's interest rates, it makes no sense to substitute a 0% interest payment (the Chapter 13 plan) for a 6-7% or more home equity loan payment!

[notreallyme]

Probably a different answer if your mortgage is inside the plan. Then, the trustee is tacking on 8-10% on top of your mortgage payment, so a lot less interest if you can get out of the plan early. So, probably depends on if your mortgage is in the plan and if so, what percent of your monthly payments to the trustee go to the mortgage.

[Carmella]

I don't see how that would even be allowed. Our HELOC closed when we filed. And we couldn't take out any loans unless having the court's/trustee's approval.

[justbroke]

Probably a different answer if your mortgage is inside the plan.

Just for those that no the distinction of "inside the plan" versus "outside the plan."

Inside the plan means that the payments are made by the Trustee. The Trustee makes their commission (income) by paying things. If the Trustee pays something, then they collect 8-10% as a commission.

Outside the plan means that the payments are made by the debtor. It doesn't man that the payments are "in the plan." It just means that the payments are not paid "inside the plan" (through the Trustee).

As mentioned, if you are current on your mortgage or even your vehicles (or other secured debt), you should never pay "inside the plan" if a.) you're in a 100% plan, or b.) you don't have enough disposable income to cover the Trustee commission (e.g., you're in a 0% plan).

[anunezal]

I am looking at same option. Let me ask the question other way. I am in 100% plan, pass 3.5 years without missing a payment. However, I am looking to potentially get lay off. So I will not be able to make my payments. So, it may be worth to take a Home equity loan, pay off the balance, and avoid a dismissal, and be charged for all the accumulated interest by the creditors. Is this possible to do? Also I pay 10% to the trustee plus 2% to the creditors. so, actually I am paying 12%, that is way more than the 0% mentioned above. thank you

[justbroke]

If the Trustee doesn't make any payment, then the Trustee makes $0.00 (0%). Generally speaking, most Chapter 13 Trustees and courts don't like these so-called back-door Chapter 7s. If the Trustee isn't paying anything... then why is there a Chapter 13? Now, if you have secured debt being paid through the Trustee but otherwise have a 0% plan, this could work.

In your scenario you are not paying 12%. This is why we say that unless you're in a 100% plan, the percentage does not matter. Here's why. If you are in a 2% plan, then the Trustee gets 10% of 2%. What's even more interesting, is that in a plan that is less than 100%, the Trustee's payments come from the DMI (disposable monthly income). In other words, the creditors pay the Trustee commission in a less than 100% plan.

[anunezal]

Not really. I my 100%, I pay every month $3100.00 . Trustee immediate takes $310.00, Then it pays the creditors two paymets with the $2790 as follows. 2% interest for the balance., then the rest is to the principal. so, yes it is a 12% in total. Not 0%

[justbroke]

Not really.

What do you mean by "not really?" Where do you get 2% from? Are you in a 100% plan that requires paying interest (which is strange because it would be Till)?

Maybe you are mixing secured debt payments with disposable monthly income (DMI). They are two completely separate things. If you are paying $3,000/month as DMI into a 5-year plan, that's $180,000 of unsecured debt being paid. That's a significant plan.

But, if you're saying you pay the Trustee $3,000 a month and the Trustee is paying a house and/or car, attorney fees, other secured debt, and the allowed unsecured claims, then that's not your DMI being paid. That's just your monthly payment to the Trustee.

In a non-100% plan we always say "do not worry about the % paid" because it is irrelevant to the conversation. It just complicated the calculations. In a Chapter 13 you always pay, as priority, your administrative claims (the Trustee, your attorney, and other designated administrative claims), your secured debt, your priority debt (non-dischargeble taxes), and then your unsecured debt. That total payment is not your DMI but a combination of your secured debt payments plus your DMI.

As I have written, it gets complicated when you a.) pay your mortgage inside the plan, and b.) have no DMI. In that case only will you pay 8-10% over the mortgage payment because it's being paid inside the plan. This scenario is rare because it tends to indicate that the debtor can't afford the property.

[anunezal]

I am paying $$150,000 unsecured debt. With Added 10% Trusted fee, PLUS a 2% interest to the Unsecured debts, it gives me around $180,000. Yes, it is a very high unsecured debt. I pay my secured debt (3 mortgages) outside the plan, another $7000.00 per month.. I am in 100% plan. My salary is way above the DMI, that is the reason of my 100%. The only way the Trustee accepted my case was to add in good faith 2% extra for the CC.
I own my own cars. I don't have any other debt besides the Unsecured debt (credit cards) and secured debt (3 houses).

So, yes I am paying 12% interest in my 100% plan. So, not it is not 0% to the trustee.

[justbroke]

As I wrote above, you are paying more than 10% because you are in a 100% plan. Most plans are much less than 100%. Most plans are less than 60% payback.

The Trustee will always get their 10% whether you're in a 100% plan or a 0% plan. The confusing part is that if you are in a 50% plan with $500 projected monthly disposable income, and your payments to the Trustee are $3,000 overall, then the $300/month comes from that projected monthly disposable income and is not extra income. Your payment would still be $3,000 and the unsecured creditors would receive $200 of that $500 projected disposable income.

Only a 100% payback causes a debtor to (potentially) spend more than their actual DMI. That's because many 100% plans pay interest to the unsecured creditors, and you still have to pay the Trustee their commission for making payments.

I would not call the trustee fee "interest" at all. You're paying a fee. You're paying 2% interest to the unsecured creditors plus the trustee fee.

(The reason that 100% plans are charged interest is because... well... they can afford to pay the creditors something. Otherwise a smart person could run up $300K in unsecured debt at 24%, then just file bankruptcy and still pay back $300K over 60 months, but at a 0% interest rate.)

Because you are in a 100% plan, the general rule which I explained earlier, does not apply.