The one question debtors commonly ask before filing for bankruptcy is whether they should stop paying their bills or other expenses. It may seem like a waste of money to continue paying your creditors, especially if you anticipate having your debts discharged and after all, you are already struggling to make ends meet. Whether or not to continue paying your bills depends on what type of bankruptcy you plan to file, what types of debt you owe and when you plan to file your case.
Types of Bankruptcy Debt
Neither Chapter 7 nor Chapter 13 bankruptcy will cancel all types of debt, however, both options can help eliminate debt. You must still pay your daily living expenses, like housing, utilities and insurance. Some financial obligations that are secured or tied to property belonging to the debtor, like car loans, mortgages, or loans for electronics or furniture serve as collateral if you want to keep the property, so you will need to pay these bills. Other debts, such as medical bills, personal loans and credit cards are not connected to any asset, so if you fail to pay these bills, there is nothing the creditor can do unless they take further legal action.
Are you considering filing for bankruptcy?
If so, you should evaluate your expenses to determine which are necessities and which are luxuries. Is cable television really a necessity?
You should continue paying your expenses that are necessary for daily life, such as rent, utilities, car insurance, and cell phone plan because these are all bills for ongoing services that you will continue to pay after filing for bankruptcy.
Car loans are a secured debt, so you must continue making regular payments if you want to keep your car. If you default on your payments, the lender has the right to repossess it. In a Chapter 13 repayment plan, you can restructure your car loan payments so they are more affordable. This is not an option if you file for Chapter 7 bankruptcy, however, you may be able to negotiate a reaffirmation agreement with the lender. In turn, your debt would be excluded from your discharge to keep your car under new terms.
You should continue making regular mortgage payments after filing for bankruptcy if you want to keep your house. This is because your mortgage is a secured debt. As a condition of the mortgage, you gave the lender a lien against the property, therefore, the creditor has the right to foreclose on your home if you default on your payments.
Bankruptcy does not remove the lien, but can discharge your personal liability on a mortgage. Chapter 13 can help you catch up on your mortgage payments if you are behind. Remember, you must continue to make regular mortgage payments in order to keep your home, whether you are planning to file a Chapter 7 or Chapter 13 bankruptcy.
Spousal Support or Child Support
If you have obligations such as paying alimony or child support, neither are dischargeable in bankruptcy. This means you will still have to pay these debts, as determined by the court regardless of the outcome or type of bankruptcy you file. Chapter 13 may provide a repayment plan in order for you to catch up on missed payments, but you need to continue paying them during and after the bankruptcy proceedings.
Medical Bill or Credit Card Payments
Medical bill debts are unsecured and can be discharged during bankruptcy, so you should stop paying these expenses if you are close to filing.
Credit Card payments are also unsecured debts, meaning they are not tied to any asset. Both Chapter 7 and Chapter 13 bankruptcy will wipe out credit card debt. Therefore, if you are about to file for bankruptcy, you should stop paying credit card bills to avoid wasting your money.
When Do You Plan to File?
You should make sure you are going to file for bankruptcy and that you have a plan in place, before you stop paying your bills. It’s hard to catch up once you fall behind and late payments and penalty fees add up quickly. Also, this may give your creditors time to file a lawsuit.
If you want to file for Chapter 7 bankruptcy, you must meet certain standards to qualify. If you want to file under Chapter 13, you must make sure you have enough monthly income to satisfy a repayment plan to your creditors.
If you are not sure which type of bankruptcy is right for you, call Craft Law Offices and let bankruptcy attorney Leslie Craft explain these 2 types of bankruptcy to you. She can help you make the right decision based on your situation and needs.
Contact Craft Law Office
An experienced bankruptcy lawyer can help with any questions you may have regarding the type of filing and the timing that works best for you on how to handle your debts. Call 252-752-0297 and let us help you get your peace of mind back today.