28 May Mechanics of Chapter 13-Part Three
In Parts One and Two, we considered how Chapter 13 plans are proposed, and how payments are made. Now let’s consider what happens to the money that is paid into your Chapter 13 plan, and how you know.
Once your Chapter 13 plan has been approved by the court (or “confirmed” in bankruptcy parlance) the trustee will begin distributing the money you pay to your creditors. Before paying any money to creditors, however, the trustee must be absolutely sure your payment has cleared before she pays that money to creditors. Therefore, trustees will not usually distribute all of the money that shows in your account. You will usually see a small reserve that is roughly equivalent to one month’s payment.
Periodically, the trustee will provide the court, you, and your attorney with an interim report, which shows how much each creditor has been paid, how much remains to be paid to each creditor, and an estimate of when your plan may be completed. There is important information to be gleaned from these reports, but they can also be confusing. The most important information may be in the creditors to be paid, both to ensure that the creditors you want to be paid (like the lienholder on your car and your property taxes) are in line to be paid, and to ensure that claims have not been filed in your case that don’t belong. A review of claim information in the early stages of the case can prevent problems later on.
The interim report will also let you know how much has been paid on various claims. For example, you can follow and determine when your mortgage arrears have been caught up, or when your car has been paid off. In some districts, where your mortgage payment is made by the trustee, the trustee will also file a motion or provide notification of when, according to her records, mortgage arrears have been paid in full. Those are important milestones for you to track.
Unfortunately, most people focus more on the estimate of completion of the case, and certainly it is natural to do that. But note that I have used the word “estimate.” That is exactly what it is, and it may not be accurate. There are a number of factors that go into determining when your plan is completed, including the claims filed by your creditors. In most cases you will complete your plan “on time.” That is, if your plan says you will pay $500 a month for 60 months, that is exactly what you will do. Some plans may require more, occasionally, they require less. The interim reports issued by the trustee are automated (most Chapter 13 trustees are handling thousands of cases at any given time) and may not take into account all those variables. If you have a need to know exactly how much you owe (for example, you are trying to refinance your home and pay off your Chapter 13) check with your attorney.
Some trustee’s provide interim reports each quarter, and some provide the reports twice a year. In between those reports, if it is necessary to do so, your attorney may be able to provide additional information. The trustees in my district provide attorneys access to a web-based reporting system which allows me to check the status of payments, claims, and disbursements. That helps me analyze the progress of a case, and better advise my clients. For example, when a client is having trouble making plan payments, I can better determine whether a moratorium in payments, modification of a plan, or perhaps conversion to Chapter 7 best meets my clients needs.
Before a Chapter 13 case is closed, the trustee’s records of payments will be carefully audited before the court approves a final report, showing all disbursements in the case. You should keep that final report with your other important papers, including the Order of Discharge in your case, in case questions should arise about what was paid in your case.
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