- After filing a bankruptcy, a debtor will often have the option to pay certain creditors directly, as opposed to paying them within the Chapter 13 Plan. However, this is only the case if the debt is non-dischargeable or is secured by property, such as a car or house, which the debtor wishes to retain. If this is the case, the creditor is listed as a direct pay in the Chapter 13 Plan and the payment is accounted for on the expense schedule for the debtor.
- Oftentimes, debtors file a Chapter 13 to restructure debt, in which case, it is included in a repayment plan. This often lengthens the amount of time the debt is repaid, alters the amount of the debt that is repaid, or decreases the interest rate being charged. The Chapter 13 Plan payments are made to the trustee’s office either directly or through payroll deduction and are forwarded on to the creditors.
- In a Chapter 7 bankruptcy, payments to creditors are made directly. However, as with direct payments in Chapter 13 cases, only debt that is non-dischargeable or is secured by property may be paid. The debtor and creditor typically sign a reaffirmation agreement which says the debtor will retain the property and what the financing terms are.
- Preferential payments to creditors are payments that are made within 90 days of filing for bankruptcy, or up to one year if the payment was made to an insider, if the debtor was already considered insolvent and the payment was more than the creditor would have received through a Chapter 7 bankruptcy. For example, if a debtor paid a lump sum to a credit card company and then filed bankruptcy, the trustee could void the transfer and have the credit card company return the funds so that it may be distributed to all creditors equally.
- Postpetition transactions are similar to preferential payments in that they are unauthorized payments to creditors, but these are made after the debtor filed bankruptcy. These payments may also be voided by the trustee.
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