By Jeff Curl
Clients ask me constantly whether they should continue to pay their bills. It’s a good question, but like many lawyers, my answer must be the predictable “it depends.” It depends in part on the type of bills, chapter of bankruptcy, and timing for filing bankruptcy. Let’s look at why each one matters.
What kind of bill are we talking about?
With a few exceptions, I always have clients continue to pay for things he will need after the bankruptcy, such as utility bills, the phone, insurance and rent. You need the lights on, your cell phone, your insurance and a place to live.
Subject to the discussion below about timing, most clients usually cease to pay unsecured debts such as credit cards, personal loans and medical bills. These are going to be discharged in a Chapter 7 and paid a certain percentage in Chapter 13, so there is often little point in paying down a debt you are going to discharge anyway. That said, sometimes there can be reasons for continuing to pay something like a credit card, including just a plain showing of good faith, i.e., think of your last three credit card statements showing several thousand dollars in purchases with no payments, versus some demonstrated attempt to repay your debts, even if below the monthly minimum.
The chapter of bankruptcy matters.
Chapter 7 versus Chapter 13 can dictate the ongoing payments to a creditor. Secured debts such as a mortgage payment or car payment matter. For example, if you want to keep your home, it is paramount that you are current on your mortgage and property taxes on the date of filing, and thereafter. In a Chapter 13, missed mortgage payments before filing can be cured and repaid over a period of years. Not that you would miss payment intentionally just because you can, but if you have limited resources and need to do this before you file, you can in a Chapter 13. The same analysis applies to your car payment.
The certainty and timing of bankruptcy.
While I generally prefer clients cease paying credit cards if they are filing bankruptcy, sometimes it is uncertain if someone will meet the eligibility requirements of bankruptcy or follow-through with filing. If this is the case, missing payments can set you up for harassing calls, lawsuits, wage garnishments and other unpleasant activities.
Things such as a client’s changing jobs, moving or other fluctuations in their lives can impact the decision to pay or not some bills before filing bankruptcy.
It would be nice if I could lay out a formula or scenario for every situation and simply answer the question as a yes or no. But really, “it depends” on taking a holistic approach toward your situation to determine which bills to pay or not pay before filing bankruptcy.
Image Credit: RYCF
