Trustee's Way of Paying

[Maximo]

I'm always checking our account on 13 data center and it seems our trustee should pay off all the smaller claims first. There are 9 claims under $500.00 and it just seems they would try to get those taken care of and off the records. Do they have a formula they use?

[justbroke]

Actually, there is a formula and that is known as pro rata. The Trustee is barred from paying (general) unsecured -- those without priority -- at different rates! The Trustee must pay them pro rata based on what your disposable monthly income (DMI) is (both calculated and actual). So, the Trusteee may not pay off the $50 credit card balance before they pay off the $5000 credit card balance.

In fact, in a plan less than 100%, then $5000 credit card would get more "actual" dollars. For example, say you're in a Plan that will pay back 10%. (Payback percent doesn't matter to the debtor, but I need it for this demonstration.) That 10% is based on a 60 month (5 year) plan and is about $6,000 total over the 60 months. The total allowed unsecured claims is $60,000, so 10% is that $6,000. The $5,000 credit card would get $500 and the $50 credit card would get $5 over the life of the plan. However, the Trustee can't pay the $5 to the $50 unsecured credit card off in month 1! Technically, the $50 credit card would only get $0.08 centers per month for 60 months.

This is why the Trustee usually waits, because the cost to produce a check -- from what I'm told from my Trustee's office -- is about $1.00. The Trustee doesn't want to spend $1 to pay $0.08 to the small creditor. This is why they wait to issue just one or two checks towards the end. The Trustee just lets the balance accumulate for the (non-priority) unsecured creditors.

justbroke's study guide; In this same scenario, the DMI is $100/month. The Trustee gets between $5 and $10/month to administer that amount. Imaging the Trustee spending $15/month issuing checks for $0.08 over 60 months. That's a losing game for the Trustee.