Do I stop paying bills before filing Chapter 7 bankruptcy?
Recently on our legal forum a user asked, “I have recently suffered a devastating disability and divorce. I have struggled to pay my bills, but I currently have over $50,000 in unsecured credit card debt and $25,000 in medical bills. I am wondering if it makes sense to stop paying my bills or whether I should stop paying certain creditors because I am filing Chapter 7 bankruptcy in a few months?”
Overview of Chapter 7 bankruptcy
Filing Chapter 7 bankruptcy allows qualifying debtors to discharge some of their unsecured debts, which means creditors will not have the legal right to continue debt collection efforts following the debt discharge.
Whether you should stop paying a creditor depends on several factors: whether you are filing Chapter 7 or Chapter 13, whether you have unsecured or secured debts, and how soon you are going to file bankruptcy.
Bills that you need to continue to pay
Although we will provide general advice, it’s important to discuss your particular case with a bankruptcy lawyer before you take any action. With that said, there are certain bills that you will need to continue to pay.
Keep paying your home loan
First, prior to filing bankruptcy you will need to keep paying your home mortgage. Failing to pay your home mortgage may result in an immediate home foreclosure. Although you might end up losing your house if you file Chapter 7 and cannot pay your mortgage, if you decide to file Chapter 13 bankruptcy you will have to make mortgage payments as part of your Chapter 13 bankruptcy repayment plan.
Keep paying your car loan.
Although some debtors will not be able to keep paying their car loan, if you are able and plan to keep your car, you will need to make car payments.
What do I do about my unsecured debts?
Given your question and the type of debts you described, it sounds like you are really asking whether you should continue to pay your credit card and medical bills.
Most bankruptcy attorneys will tell you that it’s a good idea to stop making payments for unsecured debts which are likely to be discharged in bankruptcy. Exceptions might exist if you are not going to file bankruptcy for several months, and the creditors are threatening to file lawsuits against you. Talk to a lawyer if you have questions about the timing of your bankruptcy filing.
What unsecured debts do I have to pay?
It’s important to understand that certain types of unsecured debts will not be discharged in bankruptcy. With this in mind, it is not a good idea to stop making payments for these debts. For example, if you owe child support or spousal support payments these debts will not be discharged and failure to pay could lead to other penalties.
Another type of unsecured debt that you might need to continue to pay is bills for utilities. It’s generally a good idea to continue to make utility payments, especially if you want to continue to to receive water, electricity or gas.