Bankruptcy: When to Stop Making Payments

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Here at Veitengruber Law, we have been asked many questions regarding bankruptcy, but far and away, one of the most common questions is, “Should I stop paying my bills?”

Believe it or not, the answer is not as simple as it may seem. It’s important that you know which bills you should do your best to stay on top of, and which debts you can safely stop making regular payments on.

Any real property that you hope to retain possession of after your bankruptcy case must receive your utmost attention. For example, if you plan to keep your vehicle and home, make it your priority to pay your mortgage (or rent) and your car payment in full as often as possible up to the date of your bankruptcy filing.

If you’re filing for a Chapter 7 bankruptcy, you can safely ease up on your payments regarding unsecured debts like past medical bills, credit card balances, and miscellaneous loans of a personal nature. An unsecured debt means that it is not connected to real property that you could lose in a foreclosure, should you stop making the payments.

The reason that you can safely stop making payments on unsecured debts is that these are the items that are most likely to be discharged or “released” through your bankruptcy case. As they will be forgiven anyway, to continue paying on them would be synonymous with flushing money down the toilet.

It is also important for our clients to know that, according to Bankruptcy Code, you may not make any large payments within 90 days of filing for bankruptcy. The reason for this rule is to prevent debtors from paying back money they may owe a family member or friend so that that money won’t be taken to pay other creditors. These payments are also called “preference payments,” because it will appear that you gave preferential treatment by paying some people and not others. The bankruptcy trustee will find out about any of these payments and will simply sue whomever you made payment to in order to get the money back. Avoid a lawsuit by abiding by the Bankruptcy Code Rules.

You will also want to avoid making anything that would be deemed a luxury purchase within three months of filing for bankruptcy. Doing so looks very bad to the Bankruptcy Court and the debts incurred will most likely not be discharged. Attempting to defraud the Bankruptcy Court will almost never be successful. In many cases, even big purchases that are made more than 90 days before you file for bankruptcy can be intensely scrutinized to make sure you originally had the intention of paying them back. Although the Bankruptcy Court will have to prove that you had fraudulent intent (for purchases made more than 90 days before filing), it’s still advisable to avoid making any extravagant purchases at a time like this.

As you prepare for your bankruptcy case, there are many rules to follow and hoops to jump through. Although it isn’t wise to stop paying for everything, you can forgo making payments on your unsecured debt because it will be wiped out when the bankruptcy case is discharged. Do make sure that your mortgage, rent, car payment and insurance policies are kept as current as possible so that you do not lose valuable property. For all of the details regarding filing for bankruptcy, and to get the best results possible, call George Veitengruber, Esq. today, and set up your free consultation.

 

Image credit: Flickr/photos/jakerust
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3 Responses to Bankruptcy: When to Stop Making Payments

  1. Pingback: If I File for NJ Bankruptcy, Will I Lose My Car? | Veitengruber Law

  2. Pingback: Bankruptcy and SSDI: Will I Lose My Disability Income? | Veitengruber Law

  3. Pingback: Can Creditors Contact Me After a Bankruptcy Discharge? | Veitengruber Law

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