How to Pay Special Creditors after You File Bankruptcy
March 23, 2015
If you file a bankruptcy, it’s okay to voluntarily repay any debt. But there can be consequences.
In General, You Can Pay a Debt Even After Discharging It in Bankruptcy
The Bankruptcy Code says “[n]othing… prevents a debtor from voluntarily repaying any debt.” Section 524(f). So after filing bankruptcy and discharging (legally writing off) your debts, you can pay select one or more to pay regardless of not having a legal obligation to do so.
But paying that debt or two may have some consequences worth considering.
Paying Special Debts Before vs. After Filing
First let’s make something clear at the beginning. We’re NOT talking here about payments made to creditors BEFORE the filing of bankruptcy. We covered that in our last blog post. If you already paid a favored debt before filing bankruptcy or you are considering doing so, be sure to check out that blog post. That’s because the consequences of paying certain before bankruptcy can be quite problematic.
Chapter 7 vs. Chapter 13
Simply said, you can pay your special creditor after filing a “straight” Chapter 7 case, but can’t do so in an “adjustment of debts” Chapter 13 case, at least not for quite a while.
In Chapter 13 cases you have to wait until the case is completed, which is usually three to five years after it starts. So, if you definitely want to start making payments to a special creditor right after filing your bankruptcy case, you need to file a Chapter 7 case instead of a Chapter 13 one.
The reason for this difference is that Chapter 7 focuses on your financial life as of the point in time that your case is filed, while Chapter 13 is involved in your financial life throughout the length of the payment plan.
You can play favorites with and pay one or more of your creditors right after your Chapter 7 is filed because doing so doesn’t directly affect your other creditors. However, in a Chapter 13 case your payment plan is designed so that you are paying all you can afford in monthly payments over time to the trustee to distribute to the creditors. In fairness to all the creditors, the law does not allow you to favor one creditor over the other ones just because you have some personal reason to do so. So you can only favor a creditor after the Chapter 13 case is completed, again usually three to five years after filing.
How Important Is It to Pay Your Special Creditor(s)
Usually there are more important factors in choosing to file either a Chapter 7 or Chapter 13 case than this matter of paying a creditor or two after filing bankruptcy. So it’s not likely that you would base this important choice mostly on this.
In making a good decision between the Chapters, you need to balance a number of tangible and intangible factors, including your motivations about favoring the creditor(s). That’s why it’s crucial to talk very candidly with your attorney about your special debt(s) and why you are so committed to paying to get it/them paid.
Your attorney’s job is to inform you about the legal means to reach your goals, including that of paying this special creditor. He or she will only be able to do that for you if clearly explain that you want to pay off this creditor (or two) and why.