Paying creditors before filing

[Throwaway92]

Is there any benefit to paying creditors when I am most likely going to file bankruptcy....Although I know bankruptcy wrecks your credit, it it "less wrecked" if I don't miss payments on some accounts or should I just let them all go? If I file it will be a couple months from now.

[justbroke]

Only if you are sure that you are filing. Not paying creditors wrecks your credit as much as bankruptcy; especially if you miss payments on multiple accounts. Even more if you go 90+ days beyond.

Bankruptcy is a quicker recover. A person, after filing Chapter 7, could have scores in the mid-600s within 6 months of discharge and be in a much better place.

If you're filing within 90 days, you should generally stop paying if you need that money to survive. At least that's my understanding.

[shipo]

Is there any benefit to paying creditors when I am most likely going to file bankruptcy....Although I know bankruptcy wrecks your credit, it it "less wrecked" if I don't miss payments on some accounts or should I just let them all go? If I file it will be a couple months from now.

Due to the complexity of my case and when the best filing time of the year was, my attorney had me stop paying over a year before my filing date, so yeah, my credit was seriously wrecked. In the end I don't think it matters at all as the accounts closed in bankruptcy drop off pretty quickly after the discharge, and once they've dropped off, there are no marks at all on your payment history. In my case, the last account closed via the bankruptcy dropped off about 7-months after discharge.

[flashoflight]

If we're talking about minimum payments on unsecured with an outstanding balance after the payment, it makes no sense to pay your unsecured creditors when you know it's 100% you will file bankruptcy. Paying minimums like a sucker has almost zero effect on your post-BK credit score. If you have a zero balance card and somehow it survives the bankruptcy (most zero balance cards won't survive), your rebuild will be very slightly easier and cheaper since you might get an early offer with no annual fees. Eventually, the slight advantage in the rebuild will disappear and you're just the sucker for paying hundreds or thousands in minimums that you could have pocketed. The BK itself will hurt your credit score a lot and subsequently help you recover with all of those tradelines gone.

[BxRcvor]

It's definitely something I'd discuss with your attorney. If you know you are going to file within a short period then, as previously mentioned, you might stop payments in the hope of using those funds more wisely (atty. fees, court fees, etc. related to the filing). Now, one has to be careful, because the individual creditors may attempt direct legal action against you. In my case, one of my creditors went as far as filing a lawsuit against me directly to recover their debt owed. They even sent a process server to serve me with the lawsuit notice. Fortunately, my filing Ch 7 shortly thereafter quashed that lawsuit and protected me from the other creditors filing additional suits.

[bcohen]

The moment you have decided that Chapter 7 bankruptcy will be in your future is the moment that it ceases to be in your interest to pay anything to your unsecured creditors. The only exception is if you need to have more time elapse and/or make more payments toward the debt before filing to reduce the risk of an AP.

Do not fall into the trap of thinking that continuing to pay your unsecured creditors will somehow reduce the impact of bankruptcy on your credit scores and/or allow your credit scores to recover faster after discharge. This is a myth. The truth is that once you file, most of your creditors will delete the account history (good or bad) from your credit reports, and just show $0 balance, account included in Chapter 7 bankruptcy. Save your money, and use it to pay for living expenses going forward.

[Ekop785]

I was curious about this, too. What about in the case of charge-offs? Do those also "drop off" after BK? If making one or two more payments could prevent a charge-off before BK would that impact credit?

It is my understanding that next to BK, charge-offs are the worst thing to have.

[shipo]

Unless the Charge Off is in place before you file, then I don't believe you can have both, and even then I'm not sure you'll see a charge off. None of my credit accounts, and there were many, show a charge off flag, in fact, none of them even exist on my credit report any longer. Just after my discharge a year ago they were all there with some sort of a notation regarding "Included in Bankruptcy", and since then they've all simply dropped off.

[flashoflight]

Sadly I have a pre-petition charge-off and I can't get rid of it. But it will go away around the same time as my chapter 13 discharge. If this is for a ch7, welp that's a long wait.

[justbroke]

flashoflight I'm actually not suggesting this, but have you disputed the pre-petition charge off? I am very cautious to encourage anyone to dispute an "aged" collection or 90+ day account. The age of that charge-off is actually helping, yes helping, your average age of accounts (AAOA). I have seen people dispute a 6-year old charge-off and their score dropped after it was removed. Whether that's due to re-bucketing or the AAOA issue, that can hurt.

[flashoflight]

justbroke I did dispute once before I knew all the rules. It came back verified because it was sold pre-petition to a JDB who was included in the BK. I'm not going to worry about it anymore since it will fall off when I need it to.