Stop Paying Credit Cards Before Filing Bankruptcy
Before filing bankruptcy, many debtors work hard to pay every bill they possibly can even if they are sending less than what is required. But there are certain bills that debtors should stop paying immediately when they know they are going to file bankruptcy.
What Bills Should Stop Paying Before Filing?
If your credit situation has deteriorated to the point where you’re considering filing for bankruptcy, then you have a few more choices to make. One of the most important ones is whether or not you will file under Chapter 13 or Chapter 7. For those who have a great deal of unsecured debt like medical expenses or credit card bills, Chapter 7 will likely be the best choice. For those who have a lot of secured debt (mortgage payments or car loans) Chapter 13 provides the better option. In some situations, even those who qualify under Chapter 7 may consider Chapter 13. This is because you won’t take as much of a hit on your credit report, but the repayment plan has to make financial sense.
Below, we’ll talk which bills you should stop making payments on once you’ve made the decision to file for bankruptcy.
Credit Card Bills
If you know you’re going to file bankruptcy, you should stop paying your credit cards immediately. No, we are not trying to “stiff” the credit card companies out of their money. We are trying to protect the debtor from wasting their assets on something that is going to be discharged anyway. And we are also protecting the debtor from being accused of showing preference to one creditor over another.
One of the things that some debtors do is maintain payments on one credit card while allowing other debts to go into default because they want to keep that credit card after bankruptcy. But the reality is once the debtor files bankruptcy, they can kiss their credit card account goodbye. The credit card company will close out the account and mark it as discharged in bankruptcy.
This is true regardless of whether or not you file under Chapter 7 or Chapter 13. Chapter 7, of course, discharges credit card debt against assets that the bankruptcy trustee can liquidate. Chapter 13 involves a repayment plan. But certain debts are prioritized over others and unsecured debts tend to be prioritized the lowest. Even if you do end up having to repay some of your unsecured debt, it doesn’t make sense for you to continue making payments on it outside of the Chapter 13 plan. Either way, you should stop paying credit cards before filing bankruptcy.
Medical expenses are considered unsecured debt. If you’re being harried by a creditor who represents a hospital and have been making payments on this debt, you should stop if you’re considering bankruptcy. Don’t feel bad. More Americans are driven into bankruptcy by medical debt than by any other kind of debt that you can think of. They end up with exorbitant bills because they got into a car accident with an underinsured driver and have missed work for an extended period of time. It’s horrible luck and it isn’t your fault. Bankruptcy will give you a fresh start.
House or Car Bills
If you know you’re going to file bankruptcy and that you’re not going to keep your house or car, stop paying on them. Once again, it makes no sense to waste your cash on making payments on something you don’t plan to use after bankruptcy anyway. Many debtors feel guilty about discontinuing payments even if they are going to file bankruptcy; but there is nothing immoral or unethical about discontinuing payments.
Remember, this is debt forgiveness; it is okay to walk away. The mortgage company and finance company will write off their debts. So everyone gets a fresh start in the end.
On the other hand, what if you want to keep either your house or your car? You will have to continue to make mortgage and car payments. Typically, if you stopped making payments on either, the bank would foreclose on your house. Or your lender would repossess your car. Bankruptcy stops your creditors from taking these actions so you do have some wiggle room here. Additionally, it prevents unsecured creditors from turning your debt into secured debt by placing a lien on your real estate property.
So, if you know you’re going to lose the house or car anyway, then by all means, stop making payments. If you want to keep these, then you’ll have to figure out a way to roll this debt into your Chapter 13 repayment plan.
If you’re filing for bankruptcy, you may want to stop paying your utility bills ONLY if they are already delinquent. And in that case you may only want to pay for your current usage if you’re at risk of a disconnection. Once you file bankruptcy, your gas, electric and water company will not be able to disconnect your service for nonpayment of bills prior to your bankruptcy. However, if you file bankruptcy and fail to pay your utility bill for usage after you file bankruptcy, you can lose services.
Utilities such as cable television and internet service are not governed by these rules. After filing bankruptcy on your cable television or internet service bills, it is possible that those services may be cut off for nonpayment. In that case you may just search for another service provider.
Federal Student Loans
Federal student loans play by their own rules and can not be discharged in bankruptcy. You should continue to make payments on these if you can. On the other hand, filing for bankruptcy will temporarily stop creditor actions against you. This, however, won’t last. You can, logistically, roll your student loan payments into your Chapter 13 bankruptcy. You will not have to repay your entire student loan within your three or five-year plan. Never fear, your student loan debt will still be there once you’ve completed your Chapter 13 or had your other debt discharged in Chapter 7.
There are some cases in which you can appeal to a bankruptcy judge for a hardship exemption. For instance, if you have an ongoing debilitating ailment you may be able to get your student debt expunged. The burden of proof, however, is on you to show cause. Loan forgiveness is not granted easily.
Back Taxes, Child Support, & Spousal Support
Much like student loans, none of the above can be discharged in bankruptcy. You may be able to arrange something with the IRS when it comes to a repayment plan, but there’s simply no way around paying child support or spousal support.
Each of these can, however, be rolled into a Chapter 13 repayment plan. They are given precedence over other kinds of debt. That does, however, mean that you can discharge them through Chapter 13. It simply means they are considered in the Chapter 13 repayment plan.
Have Any Questions About Your Bills and Bankruptcy?
If you have any questions about bankruptcy we are always here to help. Simply submit your questions here or set up a free consultation with one of our bankruptcy attorneys at Allmand Law Firm today.