How Are Creditors Paid in a Chapter 13?

In a chapter 13, you will make monthly payments to the chapter 13 trustee.  Once received, the trustee will then disburse those funds to your creditors as outlined in your chapter 13 plan.  To be paid, the creditor has a responsibility to file a proof of claim in your case.  If no claim is filed, they will not be paid anything.  In certain circumstances, your attorney may file a claim for the creditor to protect your rights.

The bankruptcy code outlines the order in which the trustee is to pay your debts.  Generally, there are three types of claims: priority, secured and unsecured.  The first debts to be paid in your plan will be priority (i.e., child support, recent tax debts) and secured debts (i.e., automobile, furniture).  After the trustee has paid all priority and secured claims in full, they will then use any remaining money left over to pay general unsecured claims (i.e., credit cards, signature loans).  Most general unsecured claims are never paid since there is usually no money left over to pay such debts.  These debts are considered discharged (wiped away) once you have completed your plan and received your discharge from the court.

Before filing your case, your Bond & Botes attorney will review your plan with you so that you understand where and how your chapter 13 payments will be applied.  You will also receive a copy of your chapter 13 plan.