Bankruptcy

Chapter 13 Debtor Can May Make Some Payments Directly To Secured Creditors

By Jonathan Alper

The general rule in Chapter 13 bankruptcy is that the debtor makes one monthly payment to the Chapter 13 trustee who then distributes monthly payments to the debtor?s creditors- the trustee is the collection agent for all creditors. Some debtors ask whether they can pay one or more of their creditors directly each month; its called making payments "outside the plan."

Why would a debtor want to make payments outside the plan. Possibly, to minimize the costs of Chapter 13 bankruptcy. The bankruptcy trustee charges a fee to administer a Chapter 13 payment plan. The fee ranging from 6% to 10% is assessed against all plan payments collected and administered. Debtor payments outside the plan directly to creditors are not subject to the trustee fee.

Our bankruptcy court will permit payments to secured creditors outside the plan if the debtor has arranged for automatic payments to the creditor from the debtor?s employer or his bank account. The automatic payments system must have been in place before the debtor filed his Chapter 13 petition.

Full post as published by Florida Bankruptcy Law on March 10, 2010 (boomark / email).