In Chapter 13 bankruptcy, you make a monthly payment to your Chapter 13 bankruptcy trustee in accordance with your Chapter 13 plan. The trustee then makes sure your creditors get paid the proper percentage from your payments. Here's how it all works.
(Learn more about the Chapter 13 bankruptcy trustee.)
Payments Before Your Chapter 13 Plan Is Confirmed
As soon as you file for Chapter 13, you start making payments to the Chapter 13 trustee. The payment amount is determined by the repayment plan you propose to the court. (Learn about the Chapter 13 repayment plan.) Until your plan is confirmed (approved), you will probably make the payment by sending it directly to the Chapter 13 trustee’s bank. Often, the trustee requires that you make payments by money order or cashier’s check. You need to pay on time or the trustee will take action to dismiss your case.
Payments After Your Chapter 13 Plan Is Confirmed
Once the case is confirmed, you will pay in accordance with the confirmed plan or the procedures in place in your district. You might continue to mail payments to the Chapter 13 trustee’s bank. If you are regularly employed, the court may order that the payment be taken directly out of your paycheck and submitted to the Chapter 13 trustee by your employer. This is called a wage deduction order.
How the Chapter 13 Trustee Gets the Money to Your Creditors
Depending on the procedures in place where you are filing for Chapter 13, at some point, the Chapter 13 trustee starts to make distributions to creditors. Payments may be limited to your attorneys fees and secured claims, such as mortgages and car loans, until the plan is approved by the court and an order confirming the plan is signed. After the plan is confirmed, payments will be expanded to include unsecured creditors under the terms of your plan.
It is likely that the bank that collects the funds for the Chapter 13 trustee will also send out the payments to your creditors in accordance with the Chapter 13 trustees instructions.
Checking to Make Sure Payments Are Made to Your Creditors
Most Chapter 13 trustees maintain a website that can be accessed by your attorney to see an accounting of the payments made by you to the trustee and the disbursements made to your creditors.