I get asked by clients quite often, “What do I have to pay when I file for bankruptcy?” This is a loaded question, since there are many obligations that will, in fact, survive the filing of a case under the Bankruptcy Code. The general rule, for me, is that clients, in the runup to filing pay bills not debts. Bills are obligations that reoccur every month and are current. This includes all utilities, child support/alimony, HOA dues, rent or mortgage payments, and the like. Debts are bills that are at least thirty days past due and are the reason the client came to me in the first place.
So what about when you’ve fallen behind on those monthly obligations? Each category of bill has a different treatment under the code and needs to be addressed separately.
- Child support/Alimony – Pay this! Domestic support obligations are non-dischargeable and these arrears can be enforced by the probation department.
- Rent – Pay this! If you are a renter, you should keep current on the rent to the best of your ability. There is a very limited automatic stay for renters and, if you do not comply with some very strict rules, you can still be evicted post filing.
- Mortgage – this depends – are you planning on keeping the house and what chapter are you filing? Consult your lawyer for the best answer, but if you are walking away, save the money for future moving and rental costs.
- Utilities – if you can pay these, do so. Until you file, the utility companies can and may well cut off service for non-payment. Further, even if you discharge the back bills in bankruptcy, you may be required to pay a heft security deposit for future service.
- Homeowners’ dues – the rule on this is quite clear – pre-petition HOA dues are dischargeable, but the future obligation to pay remains. SO….if you filed for bankruptcy, the back HOA dues go away, but the future obligation to pay remains intact.
People who are thinking of bankruptcy often believe that it is a complete “get out of jail free” card. Not quite so. There is a lot of relief provided by the bankruptcy code to people who need a hand up, but there are still some obligations that will survive. Your best bet is to consult with an attorney who can give you comprehensive advise on how to handle those bills and debts. This way you don’t end up with outstanding debt issues after your bankruptcy is done.