Which bills can you stop paying if you file bankruptcy?
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Most people considering Chapter 7 bankruptcy are deep in debt and struggling to make ends meet. You may be forced to choose among which bills to pay on-time, which to pay late, and which you can’t afford to pay at all. If you’ve decided North Carolina bankruptcy is the answer for you, that’s a positive step towards a fresh financial start. One question we’re often asked by new clients is whether they should continue paying bills once they make the decision to file bankruptcy. Here are some things to consider.
How Chapter 7 Bankruptcy Works
When you file Chapter 7 bankruptcy, you can see a complete discharge of certain unsecured debt including credit cards, medical bills, signature loans (i.e. a loan with no collateral), past-due balances on utility bills, and most past-due balances to your homeowner’s association. Chapter 7 will not help you catch up on secured debt like your mortgage or auto loan. In most cases, Chapter 7 also won’t help with student loans unless you have extenuating circumstances to present to the court. If the bulk of your debt is unsecured debt, Chapter 7 can offer exceptional debt relief.
What About Paying Bills?
Before you stop paying your bills, you should talk to your North Carolina bankruptcy attorney to make sure you’re doing the right thing. However, there are some bills you should be able to stop paying once the decision is made to file bankruptcy. Here are some general guidelines, however, these can vary based on your unique circumstances, so having a conversation with your lawyer first is the best approach.
#1 Pay Your Mortgage
Unless you’re planning on moving out and surrendering your home as part of your Chapter 7 bankruptcy, paying our mortgage is important, so you don’t mess up and lose your home. If you’re already facing foreclosure, Chapter 7 can buy you a delay on foreclosure, but it won’t be permanent.
#2 Pay Your Car Loan
Because your car loan is secured debt, Chapter 7 won’t discharge the debt. Unless you want to surrender your car, you should keep paying the debt. One option is, if you owe more than your car is worth, in some cases, you might be able to pay off the loan for the value of the car, but you’ll need cash on hand to do it.
#3 Don’t Pay Your Credit Cards
Your credit card accounts will be closed out by the creditors once you file Chapter 7 so making payments if you’re planning to file bankruptcy soon doesn’t make sense in most cases. However, you also should stop using your credit cards if you're planning bankruptcy. If not, it can be considered fraudulent activity.
#4 Don’t Pay Your Medical Bills
Because medical bills are 100% dischargeable in bankruptcy, in most cases, you don’t need to keep paying them once you decide to file bankruptcy. However, if you need to pay one to get medical treatment while you’re waiting to file, that’s different. Medical debt is something to talk about with your lawyer.
#5 You Must Pay Family Court Payments
If you’re paying child or spousal support, these are not payments that can be forgiven in bankruptcy, and if you don’t pay them, you can wind up in trouble and facing arrest for breaching the court order. Bankruptcy will also not help you reduce these amounts – only family court can do that.
Other Bills to Keep Paying
If you owe past due balances on your utilities, these are usually eligible for discharge, but you have to keep making your current payment to avoid utility shut-off. If you have residual balances on your utilities, be sure to bring those in with you to your lawyer’s office to discuss how best to handle the debt.
If you’re keeping your car, you also don’t want to miss car insurance payments or your health premiums. The best approach when you go in for your free bankruptcy consultation is to bring in copies of all your bills, debts, and other financial documents so that the attorney can best advise you.
To find out more about the benefits of Chapter 7 bankruptcy, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 now for a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.