One of the most common questions debtors ask before filing for bankruptcy is whether they should stop paying their bills or other expenses. After all, if you are already struggling to make ends meet and anticipate having your debts discharged, it may seem like a waste of money to continue paying your creditors. Whether you should stop paying your bills, however, depends on the types of debt you owe, how soon you plan to file your case, and what type of bankruptcy you’ll be filing.
Types of Bankruptcy Debt
While both options can help you eliminate debt, neither Chapter 7 nor Chapter 13 bankruptcy cancels all types of debt, and you must still pay bills related to daily living expenses, such as housing, utilities, and insurance. Some financial obligations are tied, or secured, to property belonging to the debtor, such as mortgages, car loans, or loans for furniture or electronics. If you want to keep the property that serves as collateral, you need to pay these bills. Other debts, such as credit cards, medical bills, and most personal loans are not connected to any asset, so there is nothing the creditor can take without further legal action if you fail to pay.
If you are considering filing for bankruptcy, you should evaluate which expenses are necessities and which are luxuries. Sure, cable television may seem like a necessity, but is it really?
You should keep paying expenses necessary for daily life, such as your rent, cell phone plan, utilities, and car insurance because these are all bills for ongoing services that you must continue to pay for after filing for bankruptcy.
Even though you can discharge a past-due utility bill in bankruptcy, you may be charged a hefty deposit to continue service afterward.
If you want to keep your house after filing for bankruptcy, you should continue making regular payments because a mortgage is a secured debt. As a condition of the mortgage, you gave the lender a lien against the property, which means that this creditor has the right to foreclose on your home if you default on your payments. While bankruptcy can discharge your personal liability on a mortgage, it does not remove the lien. If you are behind on mortgage payments, a Chapter 13 bankruptcy can help you catch up. Whether you are planning a Chapter 7 or Chapter 13 bankruptcy, you must make regular mortgage payments to keep your home.
Like a mortgage, car loans are also secured debts. If you want to keep your car, you must continue making regular payments because the lender has the right to repossess it if you default. In a Chapter 13 repayment plan, however, car loan payments can be restructured to be more affordable. Chapter 7 bankruptcy does not offer this option, but you may be able to negotiate a reaffirmation agreement with the lender, which would exclude this debt from your discharge, to keep your car under new terms.
Credit Card or Medical Bill Payments
Credit card payments are considered unsecured debts, meaning they are not tied to any asset. Under both Chapter 7 and Chapter 13 bankruptcy, your discharge will wipe out credit card debt. Therefore, you should stop paying credit card bills if you are about to file for bankruptcy to avoid wasting your money.
Similar to credit cards, medical bill debts are also unsecured and can be discharged during bankruptcy, so you should not pay these expenses if you are close to filing.
Child Support or Spousal Support
Obligations such as child support or alimony are not dischargeable in bankruptcy, which means you will still have to pay these debts as dictated by the court regardless of the outcome or type of bankruptcy you file. Chapter 13 may allow you to catch up on missed payments through your repayment plan, but you need to continue paying them during and after the bankruptcy proceedings.
When Do You Plan to File?
Before you stop paying bills, you should be sure that you are going to file for bankruptcy and have a plan for the timing. It’s hard to catch up once you fall behind, and late payments, penalty fees, and interest can add up quickly, not to mention that waiting may give your creditors time to file a lawsuit. If you want to file a Chapter 7 bankruptcy, you need to meet certain standards to qualify. If you want to file under Chapter 13, you need to make sure you have enough monthly income to satisfy a repayment plan to your creditors. If you are unsure of your status or which type of bankruptcy is right for you, meeting with a local bankruptcy attorney can help.
Contact the Law Office of Levitt & Slafkes
An experienced bankruptcy lawyer can help you with any questions you may have about the timing and type of filing that works best for you and how you should handle your debts.
To schedule a free consultation, please call Levitt & Slafkes at 973-323-2953 or Contact Us Online.
We are proudly designated as a debt relief agency by an Act of Congress. We have proudly assisted consumers in filing for Bankruptcy Relief for over 30 years. The information on this website and blogs is for general information purposes only. Nothing should be taken as legal advice for any individual case or situation.