Should You Stop Paying Bills Before Filing for Bankruptcy? (2024)

FAQs

Should You Stop Paying Bills Before Filing for Bankruptcy? ›

Therefore, you should stop paying credit card bills if you are about to file for bankruptcy to avoid wasting your money. Similar to credit cards, medical bill debts are also unsecured and can be discharged during bankruptcy, so you should not pay these expenses if you are close to filing.

In most cases, if you're qualified to file for bankruptcy, making credit card payments is like throwing money down the drain. But if you're still undecided or might not file your case for a long time, stopping your credit card payments can cause unnecessary damage.

There is no minimum debt to file bankruptcy, so the amount does not matter.

Bankruptcy doesn't eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy, so you'll continue to owe these debts in full as if you had never filed for bankruptcy. And if you use Chapter 13, you'll have to pay these debts in full through your plan.

Of course, every case is different and the specifics of your case and your debts should be discussed with your attorney. However, in most Chapter 7 bankruptcy cases, payments for unsecured debts are generally stopped, while payments on secured debts and household expenses are continued.

Many banks will freeze the money in your checking and savings accounts when they learn about bankruptcy. They do this to protect creditors' assets. You or your attorney can ask the Chapter 7 trustee assigned to your case to contact the bank and release the freeze.

Neither bankruptcy requires that you be behind on your bills before filing. Instead, Chapter 7 requires that you pass a means test, which will look at your income in relation to the median income in the area where you live.

According to the U.S. bankruptcy code, there is no specific minimum dollar amount of debt owed that would make them eligible for filing bankruptcy. This means that no matter how much you owe, you can file for Chapter 7 bankruptcy. A key determinant is the size of your income.

For example, typically under Federal exemptions, you can have approximately $20,000.00 cash on hand or in the bank on the day you file bankruptcy. The vast majority of my clients have considerable less than $20,000.00 in the bank the day I file their bankruptcy.

5 Reasons Your Bankruptcy Case Could Be Denied

The debtor failed to attend credit counseling. Their income, expenses, and debt would allow for a Chapter 13 filing. The debtor attempted to defraud creditors or the bankruptcy court. A previous debt was discharged within the past eight years under Chapter 7.

What would disqualify me from Chapter 13? ›

An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy ...

Not all debts can be discharged through bankruptcy, including child support, alimony, certain unpaid taxes, and more. Income tax debt is also very difficult, though not impossible, to get discharged.

Filing for Chapter 7 bankruptcy eliminates credit card debt, medical bills and unsecured loans; however, there are some debts that cannot be discharged. Those debts include child support, spousal support obligations, student loans, judgments for damages resulting from drunk driving accidents, and most unpaid taxes.

However, if a payment is late or missed, then the trustee doesn't have the funds to pay your creditors—and you are now in breach of the plan. By law, if you miss a payment, the trustee can now file a Motion to Dismiss for Material Default, which asks the bankruptcy court to dismiss your Chapter 13 case.

Hiding cash during Chapter 7 or concealing assets can result in criminal charges. Bankruptcy fraud is a serious crime. You can face felony charges for concealing assets in a bankruptcy case. Convictions for bankruptcy fraud include fines and prison sentences.

You don't have to pay unsecured debts in full. Instead, you pay all your disposable income toward the debt during your three-year or five-year repayment plan. The unsecured creditors must receive as much as they would have if you'd filed Chapter 7.

In addition, maxing out your credit cards before filing for bankruptcy could be considered fraudulent under the law. You shouldn't think of bankruptcy as an opportunity to spend money. Instead, consider it an opportunity to reset your finances and financial life.

On the bankruptcy petition and schedules you must list all of your creditors, meaning people that you owe money to. However, if you have a zero balance then you do not owe them and they therefore do not have to be listed on the petition. This means you MAY come out of the Chapter 7 or Chapter 13 with the credit card.

Repossession stays on a credit report longer than missed payments or bankruptcy. A repossession could lead to a severe blow to one's credit score, and it might take a while longer to rebuild it when compared to bankruptcy.