Debtors in New York bankruptcy sometimes misunderstand the difference between paying a prepetition debt that they intend to discharge and paying their regular bills while in bankruptcy. The difference is important because debtors can stop paying some debts in bankruptcy, but neglecting the wrong debt can result in the same consequences as though the bankruptcy were not filed, like foreclosure or repossession.
Chapter 7 debtors in particular do not need to pay most of their pre-bankruptcy, unsecured, dischargeable debts. For instance, paying a credit-card bill after filing bankruptcy won’t help a debtor. Similar payments, like to creditors with whom debtors have personal relationships, can be avoided by the trustee. If a debt is to be discharged, then debtors probably shouldn’t waste more money on them.
By contrast, debtors do need to be careful to keep paying other types of creditors. The most important and obvious among these are secured creditors. Debtors who are trying to keep their homes (assuming the equity is exempt) or cars in chapter 7 need to continue making the payments to the lenders. If they don’t, then the lenders can foreclose or repossess the secured assets and take them away from the debtor. Naturally, when debtors sign reaffirmation agreements with secured creditors, they continue making the payments.
My next set of examples are: tax debts, child support payments, personal-injury judgments relating to operating a motor-vehicle while impaired, and student loans. These debts are unsecured, but they’re also typically non-dischargeable. If they’re going to survive the bankruptcy case, then debtors need to keep paying them.
Finally, debtors should continue paying debts relating to executory agreements. These are contracts in which the parties have ongoing obligations to each other. Executory agreements include all kinds of leases (housing, storage, auto, cell phone agreements) and private licenses. Even though these agreements predated the bankruptcy like a credit-card agreement, the debtor must continue making payments on them to continue to receive the benefits. Debtors must also decide whether they wish to assume the obligations of the executory agreement, which will include curing any arrearages.
Finally, any loans debtors take out after filing bankruptcy must be repaid like any other debt.
When it comes to paying debts after filing bankruptcy, the general rule is, if the debt is unsecured and going to be discharged, then debtors probably don’t need to pay it. Otherwise, they probably do.
If you are experiencing financial difficulty, then consulting with an experienced New York bankruptcy lawyer can help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
