Paying Off Chapter 13 Case EarlyI know, it seems like working hard to pay off your Chapter 13 payment plan would be good advice. But it’s not. Chapter 13 requires a monthly payment to be made to your creditors over a three to five year period.  The size of your payments is determined in 3 ways, but most of the time you will be required to pay over all your disposable income to your creditors during the plan.

Your disposable income is calculated by subtracting your reasonable monthly expenses from your monthly income.  On a side note, this is why it’s absolutely necessary to seek out the assistance of an attorney to help you through the Chapter 13 process. I have never seen a person successfully complete a Chapter 13 without the help of an attorney. Getting back to topic, if you work more hours, take on another job, or start a side project making good supplemental income, you will be required to contribute all your additional income to your payment plan.  You see, in congress’ opinion, you have to pay back as much as you can to your creditors through the plan. If your income goes up and your expenses remain the same, your Chapter 13 plan payment could go up come tax season (when the trustee first gets a copy of your tax return showing an increase in income). Essentially, you will be working for your creditors.

Chapter 13 helps a lot of people, especially in stopping foreclosures on their homes and stripping second mortgages, but this is a time to tackle your debt problems, not focus on ways to make more money. That’s not to say that you shouldn’t take a promotion that advances your career long-term, but if you were thinking of working overtime or taking on a second job to pay off your case early, don’t. All that excess money will simply go to paying a bigger dividend to your unsecured creditors.

The only time when this advice is not applicable is when you are paying your creditors back 100%. If that’s the case, you are perfectly fine to throw as much money into the plan as possible.  The faster you can get out of debt the better.