Dixon & Johnston LawOffice
Local618-233-1103
Toll Free800-733-2440

Should you pay off debt if you're filing for bankruptcy?

You have enough debt that you're going to file for bankruptcy. In many ways, it seems like you would want to pay off as much of that debt as possible, but experts actually advise against it.

First and foremost, you won't likely "save" any credit lines. For example, maybe you have three credit cards. You decide to try to pay one off so that, after you file, you'll still have that card. Unfortunately, the credit card company is probably not going to allow that, and they'll just shut down your account.

Plus, the debt that you're paying off was probably going to get discharged at the end of the bankruptcy process. You're not going to owe that money. You're wasting any cash you have on hand. It doesn't matter if you owe $1,000 instead of $5,000 if the total amount was about to be discharged.

On top of that, the courts don't even want you to pay anyone in particular. It can show preference. With Chapter 7 bankruptcy, assets need to be liquidated and split up. If you're paying off one lender and not the others, the court may step in, take that money back and spread it out more evenly.

This is especially true if you're paying people you know, rather than a bank or a credit card company. If you pay off your debt to your brother, for instance, and then file bankruptcy, the court may feel that's not fair to everyone else you owed money to and that you clearly chose to pay your brother because you're related.

The best thing you can do, once you decide to use bankruptcy, is simply to learn as much as you can about the process and put payments on most debts on hold until it's over.

Source: Wise Bread, "1. Don't Pay Down Your Debt," Lauren Treadwell, accessed Nov. 29, 2017

No Comments

Leave a comment
Comment Information