Paying your debts pre Bankruptcy

When you are considering filing for Chapter 7, Chapter 11, or Chapter 13 bankruptcy, the banruptcy code prohibits you from paying any of your debts without a good reason...basically, you cannot pay them. But, as with any valid rule, there are exceptions that should be considered by any potential Chapter 7, Chapter 11, or Chapter 13 bankruptcy filer. I will discuss a few of those exceptions:

Exception 1

Taxes. Did your mother ever tell you that the only things that are certain in this world are death and taxes? Well, she was right! If you have outstanding tax debt that is less than 3 years old, that is considered a priority debt that you are allowed to pay. The reason being that the IRS is always first in line.

Exception 2

Necessary secured debts. Secured debts are any debts that are tied to a piece of property (like a house or a car) and some of these can be paid too. Secured creditors have a completely different role in a Chapter 7, Chapter 13, or Chapter 11 bankruptcy than do unsecureds and can be paid as such. When a necessary secured creditor is paid, the concerns about "preference" are not as great because the collateral is usually something that is necessary for regualr living.

Exception 3

Utility bills. You are allowed to keep the lights on.

There are other exceptions as well, but they are not as easy to explain in a short blog post. These exceptions are also not always immediately accepted by your trustee which is why you should always have an Attorney advise you before deciding when to pay a creditor and what to pay them before filing for Chapter 7, Chapter 11, or Chapter 13 bankruptcy.