If you, like so many other Americans, need a fresh financial start you may have lots of questions about what bills to continue paying and which to let the bankruptcy court handle.
Your experienced attorney will be able to guide you through these sometimes complex steps. To help you begin to navigate this process, here is a list of bills and information on whether you will need to continue to pay or you’re your bankruptcy deal with it for you.
Is Paying Existing Creditors a Waste of Time?
If you are about to file for bankruptcy relief, continuing to pay certain creditors may be a waste of your money. In many cases, it is taking good money and throwing it after bad. Whether you should stop paying your creditors depends on three main things:
- whether you are filing a Chapter 7 or 13,
- the type of debt, and
- how soon you are filing.
Chapter 7 vs 13 Bankruptcy
Whether you are doing a Chapter 7 or a Chapter 13, there are some bills you will always want to pay. These are personal expenses, such as rent, food, school tuition and current utilities. In a Chapter 7 bankruptcy, generally the only bills other than regular living expenses that you will pay are for mortgages or cars that you want to keep, or for non-dischargeable debts such as government insured student loans or loans or grants from non-profit schools. In a Chapter 13 debt repayment plan, you are proposing to pay your creditors by making one monthly payment over up to sixty (60) months to the Chapter 13 trustee, who then divides it up between the participating creditors.
Different Types of Debt:
- Mortgage Loans/Home Equity Line – Your mortgage is classified as a secured debt in bankruptcy. This means that your lender loan is secured by collateral ( your home) has a right to foreclose on your house if you default on your payments. Therefore if you want to keep your home, it is prudent to keep on paying. An exception to this rule exists if you have filed a Chapter 13 and are getting rid of your second mortgage or lien.
- Debt From Car Loans – Just like your mortgage, car loans are secured debts. If you want to keep your car, you must continue making payments on the loan. But if you are paying off your car loan through your Chapter 13 repayment plan, you don’t have to send separate payments to the creditor outside of bankruptcy. If there are no arrears at the time of filing your Chapter 13, you can keep paying the lender in the normal course.
- Debt From Medical Bills Overwhelming medical bill are one of the most common reasons people file for bankruptcy relief. Thankfully, medical bills are general unsecured debts like credit card obligations. Similar to credit cards, paying your medical bills prior to filing for bankruptcy is not money well spent.
- Debt From Credit Cards – Credit card bills are treated as general unsecured debts in bankruptcy. Once you receive your discharge, your credit card debt is wiped out (Chpt 7) and a schedule for repayment is made (Chpt 13) . As a result, if you are about to file for bankruptcy, making credit card payments is typically a waste of your money.
- Debt From Child and Spousal Support If you owe child or spousal support, you must continue to pay those obligations. Back child and spousal support claims will not be wiped out by your bankruptcy, nor are they subject to the automatic stay, so you must continue to pay it from your regular income.
Timing Is Everything With Credit Card Payments
Be aware that if you don’t plan to file your case for a long time, stopping your payments can prompt the credit card companies to file a lawsuit against you to recover its debt. However, filing a lawsuit does not get a creditor it’s money and the litigation process itself can take years. To you bankruptcy counsel should, once retained, be able to run interference for you with your creditors until the time of your actual filing.
Finding Assistance When Filing For Bankruptcy
When you’re in this financial situation, stay calm, and realize there is help and assistance out there for you. The Law Office of Barry Levine is here to assist you during these stressful financial times. When you’re ready to get your questions answered, and start learning how to cope with bankruptcy, contact us and we can help you.