One of the most commonly-asked questions debtors have before filing for bankruptcy is whether they should stop paying on bills or obligations before filing. It makes sense. If someone is barely able to pay bills already and anticipates having these debts discharged, it can seem like a large waste of money to continue paying bills that will be discharged anyway.
No Bill Is the Same
One thing to keep in mind is that debtors have different types of bills. No one bill is treated the same.
Certain bills are incurred for purposes of daily living, such as housing expenses, utilities and insurance. Other bills are tied, or secured, to property belonging to the debtor, such as mortgages, car loans or loans for furniture or electronics. Other debts are not tied or secured to any asset, such as credit cards, medical debts, judgments or collections accounts.
Just because bankruptcy gets rid of certain debts does not mean other expenses do not need to be paid.
Continue Paying Living Expenses
It is recommended that the debtor continue paying those expenses necessary for daily life. Filers generally should pay the utility bills so that the power stays turned on, pay for gas to drive the car, and keep the insurance premiums paid on autos. The filers also should continue to pay the
mortgage or the landlord so that the debtor has a place to live.
The debtor also should evaluate what expenses are actually necessary and what expenses are not. Sure, the Sirius XM radio may seem like a necessity, but is it really?
What Does the Debtor Want to Keep?
Second, the debtor needs to evaluate what property they wish to keep after a case is filed. If the debtor wants to keep the house, then it is recommended that the debtor does whatever is necessary to continue paying the mortgage. The same would go for the car if they wish to keep the car. Review these expenses and items of property with the bankruptcy attorney to see what items the debtor wishes to keep.
Bankruptcy deals with different classes of debts, including secured and unsecured debts. A mortgage is considered a secured debt because it is tied to an asset, the home. As a secured creditor, the lender has the right to foreclose on the home if the debtor defaults on payments. While the bankruptcy can discharge personal liability on a loan, it does not remove the lien the bank has to the property. It is for this reason that it is recommended that the debtor continue paying the mortgage if they wish to retain the home.
Like a mortgage, car loans are also secured and are tied to the asset. If the debtor does not pay the obligation, the lender has the right to repossess the property. However, in a Chapter 13 repayment plan, these payments can be part of the repayment plan and can be structured to be more affordable through the repayment plan.
Credit Card or Medical Bill Payments
Credit card payments are considered unsecured debts, meaning they are not tied to any one asset. These debts are normally the ones that are liquidated in bankruptcy. If the debtor wishes to save any money on payments before filing for bankruptcy, credit card bills would be the easiest to forego.
However, be sure that the debtor’s case is filed soon. If they wait too long, the credit card company may file a collections law suit against the debtor. Medical bill payments work the same. These are unsecured and can be liquidated later so these expenses can be left unpaid immediately prior to filing.
Child Support or Spousal Support
These obligations are not dischargeable in bankruptcy and will follow the debtor regardless of the outcome or type of bankruptcy filed. If a debtor files for bankruptcy, they must continue making all child or spousal support payments as required by the divorce decree or other order of the court.
Chapter 13 bankruptcy may allow the debtor to catch up on payments missed prior to filing, but the debtor will still need to continue paying on them throughout bankruptcy and after, as well.
Contact an Arlington Bankruptcy Attorney for a Free Consultation Today
An experienced Texas bankruptcy lawyer can help you with any questions you may have about how the filing will affect your creditors. Please call the Law Office of Marilyn D. Garner NOW at (817) 505-1499 for a free consultation to discuss how bankruptcy may help you.