Will Paying Off Debts Before Bankruptcy Improve My Credit?

Should You Pay Some of Your Debt Before Filing Bankruptcy?

Many debtors considering bankruptcy want to pay off as many of their creditors as possible in the hopes that it will improve their relationship with the creditor or future creditors after their bankruptcy has been discharged.  The reality is that most credit issuers such as credit card companies, mortgage lenders and even car financers do not look at the “fine print” so to speak when it comes to deciding whether or not they will issue a debtor credit.

When Paying Off Debt Make Before May Not Help

Banks rely on the automated systems provided by the credit bureaus and a debtor’s payment history.  In other words, repaying debt before filing bankruptcy may not make any tangible difference in how a debtor is viewed by future creditors. Also, if a debtor repays debts before filing bankruptcy, they could run into trouble and be accused of giving preferential treatment to some creditors over others.

For example, repaying a debt to a family member or friend right before bankruptcy could jeopardize a debtor’s bankruptcy case and entangle their family member or friend in legal troubles with the bankruptcy estate.  The bankruptcy trustee could demand that the person who received the payment return that money to the bankruptcy estate, even if the money was already spent.

Cases Where it’s Good to Pay Off Your Debt

Of course there are some cases in which it is truly beneficial to repay a debt before filing bankruptcy. For example, a debtor may want to repay back rent so that they can avoid an eviction or to pay on a dependent child’s tuition so that the child is not expelled from school.  But before a debtor repays any debt when they are considering bankruptcy, they should talk to a bankruptcy attorney to find out if doing so will negatively impact their bankruptcy case.