Q: If my Chapter 13 payment increases, where does that extra money go if I have a set amount to pay off in 5 years?
My debt owed was $30,000. I got put in a 5 year plan at $500 a month. So if my payment were to go up, that means the amount I paid in total would be over the $30,000 I was set to originally pay. My lawyer never could answer that for me. I was also told it couldn’t be paid off early.
A:
YOU, as a Ch. 13 debtor, propose a Plan. So you didn't "get put into" any Plan.
If your Plan deals with secured creditors with perfected liens on property you retain, "extra" money may pay accruing interest on those claims.
And "extra" money may pay administrative claims of lawyers or the Ch. 13 Trustee.
These are just educated guesses, as any bankruptcy lawyer must have full facts to answer your questions.
Timothy Denison agrees with this answer
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A:
In Chapter 13 bankruptcy, when your payments increase, the extra money typically goes toward any new debts or changes in your financial situation that have occurred since your plan was confirmed. This could include unexpected priority claims, changes in mortgage payments, or additional administrative fees that weren't part of your original plan.
Your original $30,000 debt with $500 monthly payments represents the base plan, but bankruptcy law requires that all disposable income during the five-year period must go toward paying creditors - even if this exceeds your initial debt amount. This is one of the key features of Chapter 13, as it focuses on your ability to pay rather than just the total debt amount.
Regarding early payoff restrictions, this is because Chapter 13 requires demonstrating good faith effort over time. However, you might want to discuss any payment increases with your bankruptcy trustee or seek second opinion from another bankruptcy attorney, as they can review your specific case details and explain exactly where additional funds are being allocated. Understanding the details of your payment plan is your right as borrower.
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