Can You Stop Paying Bills Before Filing Bankruptcy?

Paying Bills in The Days Before Going Bankrupt

When contemplating bankruptcy, the question, “Can You Stop Paying Bills Before Filing Bankruptcy?” often comes up. The answer is not a simple ‘yes’ or ‘no’. It depends on various factors, such as the type of debt and the timing of filing for bankruptcy. This guide offers a comprehensive understanding of when and which debts you can stop paying before filing bankruptcy.

Understanding Unsecured Creditors

Before we delve into the specifics, it’s essential to distinguish between unsecured and secured creditors. Unsecured creditors are those whose loans are not backed by any collateral, such as credit card companies and payday loan lenders.

When it comes to unsecured creditors, it’s generally permissible to halt payments shortly before filing for bankruptcy. This implies that you can cease making minimum payments on your credit cards or stop repaying your payday loan.

However, refrain from halting payments too far in advance. If you stop paying months before filing, creditors might resort to legal measures like wage garnishment to collect their dues.

The Implications on Credit Card Debts

If you’re considering bankruptcy, it’s crucial to stop making new charges on your credit card accounts. Acquiring debts with the intention of not repaying them is fraudulent. Avoid taking out cash advances on your credit cards or lines of credit. Any new debt incurred might jeopardize your bankruptcy discharge and could potentially lead to criminal charges.

Dealing with Secured Creditors

Unlike unsecured loans, secured loans like mortgages and car loans are backed by collateral. Bankruptcy does not protect you from repossession of your assets by secured creditors if you fall behind on payments. Therefore, if you want to retain your assets, you need to continue making payments on your secured debts.

Non-dischargeable Debts: Alimony and Child Support

Not all debts are forgivable in bankruptcy. Family support debts like alimony and child support cannot be discharged through bankruptcy. If you file for bankruptcy, you will still need to maintain your monthly alimony and support payments and settle any arrears.

The Complex Scenario of Student Loans

Student loan debt is a complex area when it comes to bankruptcy. Private student loans can be considered unsecured debts. This implies that you can halt monthly payments if you intend to file for bankruptcy, and these debts will be discharged.

However, government student loans have a waiting period. These loans will still exist after bankruptcy unless you have been out of school for seven years. You can stop making payments during the bankruptcy process, but interest will continue to accrue.

Utility and Other Bills

Utility arrears, including hydro, gas, internet, and cell phone bills, are considered unsecured debt and can be eliminated when you file bankruptcy. But some utility companies may disconnect your services for arrears and ask for a large deposit to reinstate your account.

As a rule of thumb, if you need ongoing services, maintain your monthly payments. Discuss your specific situation with your trustee to decide the best course of action for you.

What Happens After Filing?

Upon filing for bankruptcy, you should immediately stop making payments to any unsecured creditors included in your bankruptcy. If any creditors contact you, inform them that you have filed for bankruptcy and provide them with the name of your Licensed Insolvency Trustee.

Consulting with a Licensed Insolvency Trustee

If you’re grappling with debt and considering bankruptcy, discuss with your trustee about which debts you can safely stop paying. If you are certain about filing, it may be beneficial to stop paying your creditors and save money for essential expenses like rent, mortgage, and living costs. If you’re unsure about filing, continue to make minimum payments to avoid further financial damage.

Final Thoughts

Understanding when and which bills to stop paying before filing for bankruptcy can be a complex process. This article provides a comprehensive guide to help you navigate these decisions. However, it’s crucial to consult with a professional trustee to fully understand the implications and consequences.

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