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Must I Continue to Pay My Bills During a Chapter 7 or Chapter 13 Bankruptcy?



Chapter 7 Debtors

Debtors do not have to continue to pay bills after filing bankruptcy petitions under Chapter 7 until they resolve matters with their creditors. If debtors plan to keep the property despite filing bankruptcy, they must continue to make payments after an agreement is reached.

Chapter 13 Debtors

Chapter 13 debtors should not make bill payments to creditors except mortgage payments or car payments paid in the ordinary course each month when the purpose of bankruptcy was to make up past-due arrearages. If the property at issue is secured with collateral, the debtor’s past-due payments continue to build if payments are not made. However, the lender, finance company, or other creditor cannot repossess or foreclose upon collateral without first seeking a termination of the automatic stay from the U.S. Bankruptcy Court. Debtors should note if no reaffirmation agreement—a contract to voluntarily repay debt to retain property—is entered into with a creditor, or if a reaffirmation agreement is not filed with the Bankruptcy Court within 45 days after the petition date, the automatic stay will end. When the automatic stay ends, the lender, the bank, or the creditor can repossess the collateral.

What Can a Debtor Expect Creditors to Do After Filing Bankruptcy?

Many creditors do not sit by and forgive a debt in its entirety when a debtor files for bankruptcy. Instead, more active, aggressive, and savvy creditors file motions for relief from stay or motions to terminate the automatic stay. The creditor must do this to proceed with collection because the automatic stay is a statutory creation in the Bankruptcy Code that takes immediate effect concurrent with the filing of a debtor’s bankruptcy petition.

It is true that a bankruptcy proceeding does temporarily stop, or pause, the debtor’s obligation to pay debts. However, creditors retain liens upon, and rights to, the debtor’s property, such as cars and homes. The purpose of bankruptcy is to give a debtor a fresh start to regroup and to determine whether each item of property should be repaid in full or partially, reaffirmed, redeemed, or surrendered. The fresh start also gives the debtor an opportunity to negotiate and work out a repayment plan.

Post-bankruptcy Payments

Rarely, if ever, will a bank or other institutional creditor decline to enter into a repayment agreement with a debtor. However, the cautious and prudent debtor should not begin making post-bankruptcy payments to any creditor without a firm agreement in place to permit the debtor to retain property.

By signing a reaffirmation agreement, the debtor is liable for deficiency payments if the car or property is subsequently repossessed. A bank may refuse to reaffirm if it appears likely the debtor will never repay debt. Credit unions might refuse to allow debtors to keep a car or a mortgage loan unless they agree to repay their credit cards. In such instances, it might make more sense to redeem property instead of reaffirming. Debtors do not have to be current on all payments to a creditor to enter into a reaffirmation agreement, but lending institutions may request that debtors bring loans current. It is prudent to not make bill payments just before or after filing bankruptcy. It is far better to use the time to analyze and review options, and negotiate the most advantageous positions for each debt and creditor. If you or someone you know has a question about the reaffirmation process or a reaffirmation agreement, it is prudent to consult with bankruptcy counsel as soon as possible.