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When do you stop paying your mortgage and credit card bills if you are going to file bankruptcy?

Montgomery, IL |

We are in a situation of not being able to afford anything due to medical expenses for our son. Do we continue to pay certain bills until we file?

Attorney Answers 4


  1. You will have to pick and choose.

    You will be able to discharge your credit card debt completely in Chapter 7 so that should be the lowest priority for you; still, it is a good idea, if you can, to pay the minimum to firmly establish that you did not take out any debt in bad faith. Also, if you can, wait 90 days before filing Chapter 7. "Luxury purchases" worth $500 or more you make with your credit cards within a 90 day window of filing for bankruptcy can be challenged as non-dischargable (of course, if you are only using the credit card for regular living expenses, this should not be a problem).

    If you intend to continue living in your home, continue to pay the mortgage, before and during bankruptcy. Failure to do so can lead to foreclosure proceedings against your property and the lender can ask the bankruptcy court to lift the automatic stay to continue those proceedings after you declare bankruptcy. In Chapter 7, only your personal obligation to the mortgage will be discharged but it will still be attached to the property. Further, if you have substantial equity in your home, a Chapter 7 could lead to bankruptcy trustee seizure and liquidation.

    You should talk to a local bankruptcy attorney ASAP to discuss your options. In the end, do what you must to help your son; everything else should be a distant second, even where you end up living.

    The information provided should not be taken as a substitute for legal advice from retained counsel. Mr. Basmaji does not intend to create nor does he consent to a formation of an attorney-client relationship with anybody, including the question poster, just by virtue of posting on information on this website. If you are in need of legal advice, you should consult and retain local legal counsel.


  2. There is not really enough information here to advise you fully. In part, it also depends on what you want to do. Do you want to keep the house, or are you willing to let it go into foreclosure and turn it over to the bank? When do you plan on filing bankruptcy, and why are you waiting to file? Are you waiting for your six month average income to go down to qualify for Chapter 7 or lower your payments in a Chapter 13? Or are you waiting to eliminate a potential preference payment issue? The timing of your filing is very important, and it may change the answer to your question.

    The short answer is that you can stop paying immediately. But, there are many good reasons that you might want to keep making payments. First, once you stop making payments you can expect collection agencies to start contacting you. This can be stressful. You can make them stop by demanding it in writing, but the whole process can be stressful. Once you file bankruptcy, these efforts must all stop. Second, missed payments will damage your credit. While bankruptcy will hurt your credit, missed payments will further hurt your score making it harder to rebuild post-bankruptcy. While bankruptcy will eliminate the debt, it does not eliminate the history of non-payment. Third, if you end up deciding not to file bankruptcy, you may be faced with late payments, fees, default interest rates, collection harassment, and generally paying more than if you’d just stayed current. You need to be sure you are filing before you stop payments.

    The best advice is to consult with a knowledgeable bankruptcy attorney about the specifics of your situation (how much you owe, when you will file, the nature of your debts, etc.). This attorney can review your finances and help you decide when to file and can give you a better answer about when to stop payments. You really should contact an attorney who focuses on bankruptcy work.


  3. That depends. On the credit cards if you are planning on filing a bankruptcy paying those you are generally just throwing away money by paying them. You should also not use the credit cards as well. If you are planning on keeping your property you should pay your mortgage. If you are planning on not keeping the home you should not pay the mortgage. When you file a case may matter if you have significant medical bills and may incur more in the future. There really are not enough facts to determine your situation. My office offers a free consultation please feel free to call me at 312-924-0227.

    Marc

    The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. Attorney is licensed to practice law only in the State of Illinois. Responses are answers to general legal questions and the receiver of such question should consult a local attorney for specific answers to questions.


  4. Stop paying on any debts that you are looking to discharge in the Chapter 7 as soon as you have made the decision to file the Chapter 7. For debts that you want to keep and not discharge, typically a home mortgage loan or a car loan, you should continue making your monthly payments.

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