Where Does the Money Go?
When you file a Chapter 13 case, you are set up on a monthly payment schedule. This monthly payment schedule is referred to as your reorganization payments. For most people these payments are set up to cure the delinquency owed to their mortgage company, car creditor, taxing authority, and at times, back child support, and the ever menacing IRS. However, there are some individuals that end up paying more each month, not only to keep the things they hold sacred, but also to make payments to their unsecured creditors.
The goal for many attorneys is to keep the Chapter 13 plan payment for each client at a minimum; to only have the clients pay in what the law dictates them to pay. But, there are times that some clients find that because of the Reform Act and specifically their income, they have to pay more into their plan each month than what is desired.
Where does that money go? If clients are required to pay something to their unsecured creditors the Trustee sets the monthly payment to pay out what is considered priority first. This includes; the remaining attorneys fees, payments to a vehicle if they put one through their plan of reorganization, their delinquency to their mortgage company, property taxes, child support arrears, IRS taxes, and then finally the payments to the unsecured creditors.
If people find themselves in a position where they have to make payments to their unsecured creditors, the Trustee has set up a policy that if you pay at least 75% on all of your claims, the Trustee will help you repair your credit after you have completed your case.
Although many people feel that it is their obligation to pay all of their creditors, many times, the law helps them make payments at an amount they can afford. However, if the law is not on your side, then the benefits of paying everyone back can be good in the long run.
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