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What are my options for handling debts outside my bankruptcy filing?

Creditor payments are allowed separate from bankruptcy with court approval

The bankruptcy process has always been one that required "full disclosure." Just as people must declare all the assets they own when they file in U.S. Bankruptcy Court, they need to list every debt owed regardless of the amount.

Many attorneys will have their clients err on the side of caution and list all open credit, whether there is a balance or not, to avoid the appearance of misleading the court.

"If you owe someone money, regardless of the amount or who it is, their name and correct address must appear on the bankruptcy petition and they must be informed of your bankruptcy filing," states Virginia bankruptcy attorney Robert Brandt.

Because all creditors have a right to share in the value of the debtor's assets, preferential payments cannot be made to some creditors and not others. However, there are options for handling certain debts outside of the bankruptcy estate.

For instance, once a Chapter 7 petition has been filed with the court, debtors can voluntarily pay a particular creditor. In spite of the payments, the delinquent account will still be listed in the bankruptcy, and will be a part of the negative credit rating that follows.

In a Chapter 13 case, in which debtors must make monthly payments to creditors from three to five years, filers are sometimes allowed to make payments directly to a creditor rather than through the court trustee. As with Chapter 7, the debt is still considered part of the bankruptcy. A common reason for a Chapter 13 filer to reaffirm a debt is to protect a co-signer from becoming the target of bill collectors after the bankruptcy takes effect.

Payments outside bankruptcy

Another provision provided by the courts is an option to "reaffirm" a debt. This is a court-approved, voluntary agreement between the debtor and a specific creditor. Such moves are recommended only when the debtor is attempting to retain a vehicle. Reaffirming unsecured debts such as credit card bills are not advised because those are the balances that the court will discharge at the conclusion of the bankruptcy.

As with other aspects of bankruptcy, there is more flexibility when handling debts related to emergencies or necessities. If a medical bill arises after the bankruptcy is filed, for example, that debt will survive the bankruptcy and must be paid independent of the court action.

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