The Short Answer
In a Chapter 13 bankruptcy, your creditors are paid in a specific priority order — not equally. You make one monthly payment to the bankruptcy trustee, who then distributes those funds according to a tiered system. Secured creditors like your mortgage lender and car lender get paid first, followed by priority debts like back taxes and child support, with unsecured creditors like credit card companies typically receiving only a percentage of what they're owed. Missing even one payment puts every creditor tier behind, which can trigger a Motion to Dismiss or other hearing that costs you time, money, and potentially your case.
As many are aware, a Chapter 13 bankruptcy is known as a repayment plan to the court for the next three to five years. Whereas many would think that everyone in the bankruptcy receives an equal chunk of the payment; that is not the case. Previously in a Chapter 13 bankruptcy, you would have made a payment to the court then paid your own mortgage yourself. The court no longer does that, the bankruptcy Trustee will now include your mortgage in the plan payment and pay those each month.
Your creditors’ claims (who all have come forth with documentation that you owe them money) get paid out into tiers starting with your mortgage payment. Here is an example of the typical tiered repayment:
Conduit payments (these are your mortgage payments)
Administrative fees: these are your fees that the Trustee takes and a portion of attorneys fees if you still have a balance with your attorney, along with any additional attorneys fees in which you have incurred during the duration of your plan.
Mortgage arrears: everything (100%) that you were behind from the time that you filed.
Vehicle payments
Priority claims: these are taxes, alimony and child support you are behind on.
Unsecured claims: these are credit cards, medical bills, etc. Usually, you’re only paying back a percentage of unsecured debt.
When you miss a payment, you are not only behind with the court, but will in turn be behind on your mortgage as well. Each time this occurs, you will be brought upon a hearing (such as a Motion to Dismiss or Motion for Relief from Stay), and you will need representation from your attorney and there are usually fees involved. Making your payments in a timely fashion and in the full amount is essential to a smooth bankruptcy. You have to always keep in mind that when you do not pay, your bankruptcy Trustee has no money to send out to your creditors and will usually try to dismiss your case.
Key Takeaways
- Your Chapter 13 plan payment goes to the trustee, who distributes it to creditors in a set priority order — not split equally among everyone you owe.
- Mortgage payments are now included in your plan payment as "conduit payments," meaning a missed plan payment is also a missed mortgage payment.
- Mortgage arrears (everything you were behind when you filed) must be paid back 100% through the plan, before unsecured creditors see a dime.
- Priority debts — including back taxes, alimony, and child support — must be paid in full before unsecured creditors like credit card companies.
- Unsecured creditors are last in line and typically receive only a fraction of what they're owed, depending on your disposable income and the length of your plan.
- Falling behind on plan payments can trigger a Motion to Dismiss or Motion for Relief from Stay, both of which require attorney representation and usually come with additional fees.
Attorney Insight
The mistake I see most often is people treating their Chapter 13 plan payment like a flexible bill they can skip when money gets tight. Because mortgages are now handled as conduit payments through the trustee in North Carolina, one missed plan payment doesn't just put you behind with the court — it puts you behind on your mortgage simultaneously. The trustees here have little flexibility when payments lapse; they move toward dismissal, and at that point we're scrambling to file a Motion to Reinstate or Cure, which adds fees and stress that could have been avoided entirely. If you ever feel like you can't make a payment, call us before you miss it — there's almost always more we can do proactively than reactively.
