When Do I Stop Paying?
As soon as you know that you are going to file a bankruptcy case...
STOP PAYING ON EVERYTHING
EXCEPT WHAT YOU WANT TO KEEP.
Also, stop talking to any and all of your creditors. Zero words. No conversation. Nothing good will come from any conversation between you and your creditors. They're good at scaring people into paying. Don't give them that chance.
So there are (1) Things you do WANT to keep (or have to keep), and (2) Things you do NOT want to keep (or can’t keep).
(Important Note: If you are going to be in a Chapter 13 payment plan bankruptcy case, we must discuss each and every “thing” to see whether you should keep making the payment yourself, or if the lender will be paid through your payment plan.)
(1) Things You Want to Keep
Say, for example, you want to keep a car with a loan on it. Keep making the payments, in full, and on time, before your bankruptcy case is filed, and after your bankruptcy case is filed, and after your case is done and closed. The same thing goes for things like a house, utilities, or a storage area.
This MAY also apply to things you have to keep, because you can’t discharge the debt in a bankruptcy case, like recent income taxes, or student loans. You CAN stop paying for these in your bankruptcy case, but the debts aren’t going away, so if you have the money, you might as well keep making the payments. Support obligations should be paid consistently without stopping.
--- Things Bought with Department Store Credit
This DOES NOT apply to things you have bought on credit, like furniture or appliances, even if the lender has a “security interest” in the items you have purchased.
While it is true that the lender can (a) go to state court, (b) get a judgment for the return of the things, (c) take that judgment to the local sheriff, and (d) have the sheriff come to your house and get the things, the reality is that the lender almost never does this, because it costs a lot more money to get these things than they are worth.
So, do NOT continue to pay for these things, because you will very likely be able to keep them, even without paying anything further. We can discuss each thing in question to see if there is any good reason to pay anything more to the lender.
--- Credit Cards You Want to Try to Keep
Every debt you have (along with every asset), must be listed in your bankruptcy case. There is no keeping anything out of your case. An interesting exception is a credit card with no balance. It is neither an asset nor a debt.
However, all credit cards you have will very likely be closed shortly after your case is filed, even if you do not list a particular card in your petition. This is because you could theoretically do something to have your bankruptcy case dismissed, run up the balance on a credit card, and then re-file a new case, and include the new debt.
So, no card is worth trying to keep in your bankruptcy case, even if you only owe a few dollars on the card. Do NOT charge up anything on any credit card just before filing (that could be viewed as fraud), but also do NOT pay off any card (or any other loan) before filing a case.
--- HOW TO PAY for the Things You Want to Keep
Once your bankruptcy case is filed, no lender can continue to take money out of your account, even if you want them to do so. The “automatic stay” that protects every bankruptcy filer prevents any lender from taking money out of your account.
However, the lender can (and must) still accept money from you. Use your bank’s bill pay website (or an old-fashioned check) to make payments to such lenders, rather than going to the lender’s website. Using your bank’s bill pay service (or a check) is sending money to the lender; using the lender’s website is asking them to take your money out of your account, which they can no longer do once your case is filed.
Some lenders have a different payment address to which they want you to make payments after your bankruptcy case is filed. Check your statement carefully, or call the lender to see if they have a different address to which to send money.
(2) Things You Do NOT Want to Keep
This is the really important part, so here it is again: As soon as you know that you are going to file a bankruptcy case, stop paying on everything except the things you want to keep.
There are two important points here: Stop sending anyone money for those things; and, Don’t let anyone get your money for those things.
--- Stop Sending Money, Intentionally OR Automatically
Make sure that you cancel any automatic bill payments you may have set up. Also, make sure to call the lender, or go to the lender’s website, and cancel any automatic payments (electronic funds transfers – EFTs).
BEFORE calling the lender to tell them to stop taking money out of your account, get all the money out of your account, and don’t let any more money go in. Some unscrupulous lenders, like payday loan companies, might try to take your money anyway, even if they promise you on the phone to stop taking it.
In the future, NEVER pay anything automatically from any deposit account you have, except for income taxes or property taxes. Pay EVERYONE else with your bank's bill pay service - have your bank send them a check (electronic or paper). NEVER give anyone else your routing and deposit account number.
--- Don’t Let Anyone Get Your Money
Stop banking with any bank to which you owe money. If you owe your bank money for anything, you have already given them authorization, with your credit application, to take money out of any deposit account (checking, savings, etc.) you have with them. They will take your money when you least expect it.
Banks don’t take money out at every chance they get; this would drive many of their customers to start banking with a shoe box hidden underneath their bed. Instead, banks look at things like how much you owe, how late you are in your payments, how much you normally have in your account, and how much you have in your account at any particular moment.
When these factors hit the right numbers, the bank’s computers instantly draft your account, and the money is gone. We’re then left fighting to try to get it back, which we might be able to do if your case is filed within 90 days of the draft, but this costs more money. The best way to keep your money is to not lose it in the first place.
The only exception to this is for a bank that you only owe money to for a house or car you know you are going to keep.
Yes, I know full well that changing banks is annoying and time consuming. But ask yourself this: Would I do 3 hours worth of work – getting cash out of accounts, opening new accounts, getting new checks, setting up bill payees at the new bank, AND transferring direct deposits, etc., - to save $900 (for example) from a bank or lender getting it?
The answer is a definite “Yes;” you would certainly work at a rate of $300 (tax free) an hour for 3 hours, even if was annoying, to save the bank or lender from getting $900 from you.
If you do NOT owe your bank anything (other than a house or car loan you’re going to keep), then the question is whether you have given any other lender authorization to take money out of your account. If you’ve ever used that other lender’s website to pay them, or paid with a “check by phone,” then you have done so (NEVER do that again, except for income taxes or property taxes).
In this case, you could keep your bank, but you should still close out the old account and open a new one. Make sure to tell your bank, when switching accounts, not to honor any further drafts made on the old (now closed) account.
As soon as you know that you are going to file a bankruptcy case, stop paying on everything except the things you want to keep.
Stop banking with any bank to which you owe money. This means get your money out, and don’t let any more money go in, through direct deposit or otherwise.
IT’S YOUR MONEY – KEEP IT!
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