My colleague at the Bankruptcy Law Network Pam Stewart addressed the question “should I pay off my Chapter 13 plan early?”.

Her conclusion addressed the policy in some jurisdictions that a payoff earlier than the plan proposed may trigger a requirement to pay 100% of the debt. That isn’t the rule where I practice, at least under pre “reform” law, thanks in part to an appellate decision I won allowing early payoff without an increase in the pay in.

I think there remains a reason not to pay off a plan early: the plan payments, at least to the extent they are going to general unsecured creditors, represent an interest free loan. Why rush to pay off a debt where there is no cost to paying later?

One danger in proposing to pay off a plan early is the possibility that the trustee might seek an increase in the monthly payment if the debtor now has more available money each month.

I see the continuance of the Chapter 13 plan in circumstances where the debtor’s situation has improved as a chance to build up cash reserves. None of my clients have sufficient money set aside for the unexpected. It’s a chance to put some extra money into delayed maintenance, whether it’s on your possessions or your own health. Practice saving money while the Chapter 13 still exercises some control over your spending.

My advice might differ where the clients are younger or might have a real chance to rebuild to buy a house, etc. where getting the discharge behind them has a tangible, rather than a psychological, advantage. But absent that need, sit back, make the payments, and pocket any improvement in your situation for a rainy day.