Direct Payment Plans
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White, Michaela M.
INTRODUCTION|The Bankruptcy Reform Act of 1994 did not address an issue of vital importance in Chapter 12 and Chapter 13 cases - the so-called "direct payment" plan. In a direct payment plan, the debtor proposes to make payment to one or more creditors directly, rather than to the Chapter 12 or 13 trustee for disbursement to creditors. At the heart of the controversy is the impact of direct payment plans on the system of standing trustees, a system funded by a percentage of the payments made by Chapter 12 and 13 debtors. A majority of the courts of appeals have held that direct payment plans are permissible and that the standing Chapter 12 or 13 trustee is not permitted to impose a percentage fee on payments directly disbursed to a creditor by the debtor. The United States Court of Appeals for the Eighth Circuit, in a troublesome decision that this author believes has been misinterpreted, is among these courts. However, decisions in several circuits are to the contrary and require the debtor to make all payments to the trustee...
29 Creighton L. Rev. 583 (1995-1996)
Creighton University School of Law