Bad Ideas for the Bankruptcy Bound: Automatic Bill Payments

In the Bad Ideas for the Bankruptcy Bound series, you’ve received an introductory look at the many reasons why it’s never a good idea to hide, or attempt to hide, a bankruptcy filing from your spouse. In later discussions we’ve seen how to avoid many of the pitfalls and pratfalls of filing for personal bankruptcy, including transferring property, using credit and avoiding creditors. Here, we’ll expand on why automatic bill payments from your checking account can lead to a loss of precious control for the bankruptcy bound.

Without a doubt, the ease and convenience of having recurring monthly bill payments paid through an automatic deduction from a checking account has made the time-saving process a no-brainer for many time-stretched citizens.  From car payments to credit card bills, automatic bill pay seems a trusty deduction process that avoids snail mail send outs, freeing up time, and peace of mind, to move on to bigger and better things.

But many argue that “free time” is precisely the problem for many cash-strapped citizens.

While auto pay allows for other things, it also frees up space for financial matters to go unnoticed. Precisely the same logic applies in credit card spending: you pay for items without the immediate financial repercussions, and pressing conclusions, that you’re spending money you don’t have.

Not thinking about fiscal matters is not only the exact opposite thing a cash-strapped person needs to do, but it also leads to a continuous cycle of avoiding the painful, but necessary, lessons of budgeting funds and reacting to changing financial circumstances: precisely the same denial of dire financial straits that put so many in a poor economic condition in the first place.

Like a credit card, having an automatic debit of a car payment, or gym fees, or house note, taken directly from your checking account, deprives you of the ever-important opportunity to think, however briefly, about the quality (and quantity) of your spending.  The auto pay acts like a thief in the night, taking from your precious and limited funds without concern or awareness for your balances. Too many of these “takings” can wreck monthly finances and take away a person’s power to prioritize each precious payment.

As such, in addition to making budgeting difficult, automatic bill payments from your checking account also take control away from the debtor—removing any option to determine when to pay which creditor and how much. This small fact can have a major impact on basic needs as auto pay can give your gym membership payments priority over that of your mortgage or car notes.  Not only that, but depleted accounts can mean substantial upturns in interest when credit card bills come due unexpectedly through the auto pay process.

What’s worse, if you’re considering bankruptcy, automatic bill payments can be especially inconvenient in terms of losing track of who’s getting what. Long story short, auto pay plus bankruptcy can mean you unwittingly pay out to creditors from whom your debts are discharged. For example, once you file for bankruptcy, non-exempt bills currently paid by auto pay will be discharged—either through a bankruptcy discharge of the underlying debt, or through a Chapter 13 plan to pay back debt incrementally.  Untracked auto payments can mean your creditors get payments they don’t deserve—especially if it takes transactional time to cease the automatic  debits.

So whether you’re filing for bankruptcy or not, begin 2010 by taking control of your personal finances. Pay your bills with your checkbook, confronting your debt head-on.  After all, it’s your money—treat it like you own it, and remember to “check” before you “spend.”

If you are considering bankruptcy, knowing a qualified bankruptcy attorney can also help you make the right spending decisions, yielding the right kinds of support, information and insights—at a low cost— for a financially viable and secure future.  The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to +1-833-627-0115, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.