In the Southern District of Ohio, bankruptcy courts are now requiring debtors that file a Chapter 13 bankruptcy to pay secured debts through their bankruptcy plan.  Ordinarily, debtors have the option to pay these debts outside or inside the plan as a conduit payment.

Chapter 13 trustees in the Southern District of Ohio adopted a new policy regarding mortgage payments made outside the plan.  The current policy is that a debtor in Chapter 13 who previously paid their mortgage payment outside the plan will be required to amend their plan to include the payment inside the plan if the mortgage becomes delinquent post-petition.  At this time the rule is only the policy of the 13 offices, not an official rule. 

With regard to car loans, the Southern District of Ohio added a local rule requiring that all vehicle payments, whether lease or loan, be paid inside the plan.  The policy behind this rule change is to increase the percentage of completed plans in the district.  Forcing debtors to pay secured debts through the plan is likely to become the norm in most jurisdictions.

From a creditor’s perspective, there are both positives and negatives with this change.  On the positive, creditors are more likely to receive payments through the 13 than if the debtor pays outside the plan.  Debtors will want to keep their plans from failing and more likely pay their plan payments then skipping on a car payment to catch up their plan payments.  On the negative, creditors will need to stay on top of trustees for disbursements, as trustees do not disburse prior to confirmation and some Chapter 13 plans can take several months to confirm, thereby delaying payments to the creditor.