Should I Stop Paying Creditors If I'm Going to File for Bankruptcy?
by: Baran Bulkat, Attorney
If you are about to file for bankruptcy relief, continuing to pay certain creditors may be a waste of your money. Whether you should stop paying your creditors depends on:
- the types of debt you have
- how soon you expect to file your case, and
- whether you are filing for Chapter 7 or Chapter 13 bankruptcy.
Your mortgage is classified as a secured debt in bankruptcy. This means that your lender has a right to foreclose on your house if you default on your payments. A bankruptcy discharge eliminates your personal liability for a mortgage loan but in most cases it doesn’t remove the bank’s lien on your property.
As a result, if you want to keep your home, you should continue making your regular mortgage payments during bankruptcy (keep in mind that some jurisdictions require you to make your mortgage payments to the Chapter 13 bankruptcy trustee as part of your repayment plan). An exception to this rule exists if you are getting rid of your second mortgage (or other junior lien) through lien stripping in Chapter 13 bankruptcy. In that case, you don’t have to continue making payments on your second mortgage.
Similar to your mortgage, car loans are secured debts. If you want to keep your car, you must continue making payments on the loan. But if you are paying off your car loan through your Chapter 13 repayment plan, you don’t have to send separate payments to the creditor outside of bankruptcy.
Credit card obligations are treated as general unsecured debts in bankruptcy. Once you receive your discharge, your credit card debt is wiped out. As a result, if you are about to file for bankruptcy, making credit card payments is typically a waste of your money. But be aware that if you don’t plan to file your case for a long time, stopping your payments can prompt the credit card company to file a lawsuit against you to recover its debt.
Overwhelming medical debt is one of the most common reasons people file for bankruptcy relief. Luckily, medical bills are general unsecured debts like credit card obligations. Similar to credit cards, paying your medical bills prior to filing for bankruptcy is not money well spent.
Alimony and Child Support
Domestic support obligations such as alimony and child support are nondischargeable in bankruptcy. This means that you can’t wipe out your obligation to pay these debts through bankruptcy. If you file for bankruptcy, you need to continue making your ongoing alimony and child support payments. However, in Chapter 13 bankruptcy, you can catch up on any payments you missed prior to your filing date through your repayment plan.
In general, continue making your payments on services you need such as your gas, electricity, water, and other utilities. Failure to do so can result in these services being shut off.