Q: How far ahead of filing bankruptcy should I stop paying credit card bills? Do I still pay subrogation debt?
I’m planning on filing for bankruptcy due to a couple of lawsuits after car accidents and prior debt. I am receiving a packet from my local legal aid office and taking this sort of “class” or something in March to get the process started. I’ve read online that I should stop paying back debt when I apply for bankruptcy or it could cause preferred creditor lawsuits. I was wondering when I actually stop doing that. Would I stop now since I’ve decided I want to file or do I wait until I actually get to a certain step in the process? Also I have an old accident I got into where I ended up going into debt with progressive. I am paying progressive’s subrogation unit $50 monthly. I just want to know if I should stop the payments now and start saving for legal fees and what not. Thanks.
A:
As an Attorney I would not risk giving you advice on stopping payment on your debts without knowing all the details of your case, ie without you coming to see me as a client and we do a thorough evaluation of your situation. Any payments you make on debts prior to your bankruptcy is probably money wasted but there can be some debts that you want to pay for some reason or another. I just can't risk malpractice and give you advice in a vacuum.
What your are talking about is when you pay a large sum of money to anyone creditor within 90 days of filing. The bankruptcy trustee can collect from the creditor payments over a certain amount and distribute the money to the other creditors. This is called a "preference" which means that you can't pay your favorite creditors large sums of money to "prefer" them over the other creditors. The look back period for payments to general creditors is 90 days before filing but payments to "insiders" (friends, family members, business partners, ie people you care about) can be 1 year before filing. There are also avoidable transfers if you make large gifts or transfers going back a year. Essentially you can't play games with your money before you file.
If you are concerned, pay for a consultation with a bankruptcy Attorney. Bankruptcies aren't all that expensive and it will really reduce your stress. Maybe you have money coming from a tax refund soon that you could use to pay for your bankruptcy?
A: Keep paying the very minimum until you are ready to file. This will keep the creditors strong bay so you can file without creditor harassment prior to filing.
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