So you’ve taken the leap and filed bankruptcy. Wiping out your debt is a fulfilling feeling, but don’t let that feeling of relief prevent you from making important financial decisions in the future. After all, you can’t improve your credit score if you don’t pay your bills after you file.
Paying the bills after bankruptcy
As a general rule of thumb, there are three types of bills to pay after you’ve filed bankruptcy:
- There are some debt in bankruptcy that are not discharged.
- There are creditors who hold an unavoidable lien on your property you want to keep.
- Your regular monthly bills for ongoing services must still be paid.
Debts that cannot be discharged in bankruptcy
Bankruptcy is designed to wipe out your consumer (and business) unsecured debts like credit cards, personal loans, and medical bills. Filing bankruptcy will also eliminate your personal liability on any secured debts, meaning that the only recourse available to a secured creditor after you file bankruptcy is to repossess the collateral securing its debt. They can’t sue you for the difference in the value of the property they get at auction and the amount you used to owe prior to bankruptcy.
If you owed recent taxes in which the tax return was due less than 3 years before you filed bankruptcy, you’ll have to work outa payment plan with the IRS or your state taxing authority to pay back your tax debts.
Likewise, if you have student loans that were no found to be an undue hardship (hint . . . most aren’t), you’ll still have to make payments to your student loan creditor. In a Chapter 13, your student loans will be deferred for the length of the case, although interest will continue to accrue.
Child support and alimony are also not dischargeable in bankruptcy. If any debt in connection with your divorce is deemed to be a property settlement, that debt IS dischargeable in a Chapter 13; however, no debts related to your divorce, including property settlements, are dischargeable in a Chapter 7. Whether a debt is a property settlement is determined by the bankruptcy judge. The main question to ask is whether the debt is in the nature of support. If the debt is determined to be in the nature of support, it’s a domestic support obligation that cannot be discharged in a Chapter 13.
Creditors holding liens
There are many different types of liens that may attach to your property. You granted your mortgage and car lenders liens on your property in exchange for loaning you money to purchase those things. An IRS tax lien is a form of a statutory lien. A creditor, like Midland Funding, who sues you and obtains a judgment has a judgment lien against you. Two types of liens can be avoided in bankruptcy: judgment liens and liens on your household goods where the money borrowed was not used to purchase those same goods. For example, if you borrowed money from a lender specifically to buy a TV and you granted that lender a lien on the TV, it’s called a purchase money security interest, and the lien cannot be avoided. It will survive bankruptcy. If you want to keep that TV, you will have to keep paying the lender. But if you borrowed money from a lender to catch up on paying your past-due bills and gave that lender a lien on a TV you already had, that lien can be avoided in bankruptcy.
The liens you have to pay are the onces that cannot be avoided and cover property you want to keep. So if you want to keep your house and your car, you need to continue making your car note payment and mortgage payment.
Regular monthly bills after bankruptcy
Bankruptcy wipes out almost all your debt that existed before you filed your case, but that doesn’t mean that future services are free. It is understandable to view any money you send out as a bill, regardless of whether it’s a credit card bill or your phone bill. But your phone bill is something that is provided to you new every month, even after you file your case. So if you continue to receive power, pay your power company (but don’t pay a two-year old bill to a former power company at an old address). If you want to continue using your cell phone, continue paying your phone carrier. In a nutshell, if it’s a utility bill for a service you no longer receive, don’t pay it. It’s been discharged. If it’s the bill from your current utility provider (cable, water, internet, power, gas, etc.) continue to pay it.
Payments in Chapter 13 Bankruptcy
Chapter 13 is a little more complicated since you’ll be paying your creditors through a plan approved by the court over a 3 to 5 year period of time. In Georgia, you must continue to make your regular monthly mortgage payments directly to your lender, but most of the time, your car payment will be included in the payment made to your Chapter 13 trustee. Any missed mortgage payments will also be paid back through your Chapter 13 plan payment. If you have a second mortgage that can be stripped off because the first mortgage is more than the value of your home, you won’t have to pay your second mortgage lender anymore. If you have any questions about who to pay, speak directly with your attorney. You must be devout in making your plan payments. Getting more than a month or two behind can be disastrous for your Chapter 13 case.