How Are My Creditors Paid in a Chapter 13 Bankruptcy?

As many are aware, a Chapter 13 bankruptcy is known as a repayment plan to the court for the next three to five years. Whereas many would think that everyone in the bankruptcy receives an equal chunk of the payment; that is not the case.   Previously in a Chapter 13 bankruptcy, you would have made a payment to the court then paid your own mortgage yourself.  The court no longer does that, the bankruptcy Trustee will now include your mortgage in the plan payment and pay those each month.

Your creditors’ claims (who all have come forth with documentation that you owe them money) get paid out into tiers starting with your mortgage payment. Here is an example of the typical tiered repayment:

Conduit payments (these are your mortgage payments)

Administrative fees: these are your fees that the Trustee takes and a portion of attorneys fees if you still have a balance with your attorney, along with any additional attorneys fees in which you have incurred during the duration of your plan.

Mortgage arrears: everything (100%) that you were behind from the time that you filed.

Vehicle payments

Priority claims: these are taxes, alimony and child support you are behind on.

Unsecured claims: these are credit cards, medical bills, etc. Usually, you’re only paying back a percentage of unsecured debt.

When you miss a payment, you are not only behind with the court, but will in turn be behind on your mortgage as well.  Each time this occurs, you will be brought upon a hearing (such as a Motion to Dismiss or Motion for Relief from Stay), and you will need representation from your attorney and there are usually fees involved. Making your payments in a timely fashion and in the full amount is essential to a smooth bankruptcy. You have to always keep in mind that when you do not pay, your bankruptcy Trustee has no money to send out to your creditors and will usually try to dismiss your case.