Most people that come to the place in their life where they need to file for bankruptcy have a lack of funds. Prior to filing bankruptcy, every month they make the big decision of who to pay and who to let slide. This is usually the reason why they end up in bankruptcy. A little over extended and just not enough money to make ends meet. Before filing for bankruptcy is a good idea to sit down with a bankruptcy attorney and start planning the process. Including in this bankruptcy planning process is the decision of what bills to pay.
There are two basic types of debts or bills, secured and unsecured. First of all, the secured debt is one where the loan is secured by the property that was purchased. The most common example of this is a home mortgage or an automobile loan. There are other examples of this with certain revolving credit accounts for department stores that have a security clause in their agreement. This gives them the ability to repossess anything that is not paid for. In the case of the mortgage, the lender will need to start a foreclosure to repossess or foreclose on a piece of property. With an automobile loan, the lender will put the car out for repossession and if it is not surrendered, it will be taken from the driveway or where ever the repo man can find it. This is why a bankruptcy attorney will typically tell a person that they need to continue paying secured debts if they plan on keeping the property. Usually, when a person is filing for bankruptcy, the lender will ask the debtor to sign a reaffirmation agreement. This agreement makes the person liable through the bankruptcy filing and until the contract is complete. If a person decides after the bankruptcy discharge, that they no longer want to keep the property, they will be at the mercy of the lender. The bankruptcy attorney will usually explain this to their client when preparing the bankruptcy petition. If someone isn’t sure about a piece of property, it’s best to include it in the bankruptcy so the debtor will have no future liability regarding that piece of property.
On the other side of the coin is unsecured debts. Unsecured debts usually fall in the lines of credit cards and personal loans. These debts are not secured by any piece of property and are typically completely wiped out in Chapter 7 bankruptcy discharge. Most of the time, a bankruptcy attorney will suggest that these debts are less important when limited cash is available. Why continue paying on something that is going to be included in the Chapter 7 bankruptcy? The only time the bankruptcy attorney might suggest paying these debts is if the credit cards have been used right up to the bankruptcy filing. As a rule of thumb, individuals should not use their credit cards 90 days prior to filing. This also depends on what the cards are being used for. If it’s for living expenses, it is more acceptable than someone who went out and bought themselves a big screen TV a month before filing bankruptcy. When the finances get tight, before making any stupid mistakes it’s best to go sit down and consult a bankruptcy attorney to get some direction. This will make sure that mistakes aren’t made that could damage a possible filing.