What Debts Must I Continue to Pay During My Chapter 7 Bankruptcy?

When you file for Chapter 7 bankruptcy, there are some debts that you must or should continue to pay.

By , Attorney · University of the Pacific McGeorge School of Law

Filing for Chapter 7 bankruptcy can wipe out many types of debt and help you get a fresh financial start. But not all obligations will go away. Find out which debts you should continue to pay if you file a Chapter 7 case.

What You'll Pay During Chapter 7

Filing for Chapter 7 bankruptcy is an excellent way to get out from under dischargeable debt, such as credit card balances, medical bills, and personal loans. Chapter 7 works exceptionally well if you don't own much property and meet income requirements (you'll know after taking the means test).

But Chapter 7 bankruptcy doesn't help you get rid of everything you owe. Here are two types of debt you'll want to continue paying during your case.

Post-Petition Debt: Bills Incurred After Filing for Bankruptcy

When your bankruptcy case is pending, it's common to get a bill and wonder if you have to pay it or whether the bankruptcy will "discharge" or wipe out the balance. Here's the answer.

If you incurred the debt after filing for bankruptcy, the court wouldn't erase it as part of your bankruptcy. It's a "post-petition debt," so you should pay it. Examples of common post-petition debts include:

Whether the court will wipe out a balance that existed before the bankruptcy filing will depend on whether the obligation qualifies for a discharge. For instance, a utility balance predating your bankruptcy case will likely get wiped out because most utility bills are dischargeable. However, child support arrearages aren't dischargeable, so you'd continue to owe arrearages after the case. Whether you incurred the debt before or after filing for bankruptcy wouldn't matter.

Debt Secured by Collateral: Mortgages, Car Loans, and More

When you purchase expensive property on credit, the lender often requires collateral to protect against loss if you fall on hard times and don't pay the loan. Known as a "secured debt," this type of loan is commonly used when taking out the following loan types:

  • mortgage
  • home equity line of credit
  • car loan, or
  • a loan for business property, such as fixtures or equipment.

You can discharge a secured debt in bankruptcy. However, you must return the property you pledged as collateral. Why? Because when you agreed to secure the debt with the purchased property, you also agreed to allow a "lien" to attach to the property. If you don't pay as agreed, the lender can use its lien rights—a type of ownership interest—to take back the property through foreclosure or repossession.

So if you want to keep the collateral property after filing for Chapter 7 bankruptcy, you should continue making regular payments until you pay off the loan. If you fall behind during Chapter 7 bankruptcy, the "automatic stay order" that stops creditors from taking collection actions will prevent the bank from immediately foreclosing. But that's not to say the bank doesn't have any rights.

The bank can file a motion asking the court to lift the automatic stay and get permission from the court to proceed against the property, and most courts grant such motions regularly. Also, once the case ends and the court removes the automatic stay, the lender is free to pursue the lien rights.

Most Payment Responsibility Stops During Bankruptcy

Even if you can't discharge all your debt, you might get a brief payment break. The automatic stay protection that stops most creditors from engaging in collection attempts during bankruptcy extends to most debts that you can't discharge, including:

  • student loans
  • most taxes, and
  • government or court fines and penalties.

However, you will be legally obligated to pay nondischargeable debts once your bankruptcy case is closed and the court terminates the automatic stay. Learn which debts you can't discharge in Chapter 7 bankruptcy.

Sometimes You'll Owe Less on a Nondischargeable Debt After Chapter 7

If you can't protect an asset with a bankruptcy exemption and the bankruptcy trustee sells it, it's likely that it won't be a complete loss. In many cases, the trustee will use the proceeds to pay down your nondischargeable debt. Why? Bankruptcy's priority payment system requires paying priority debts before others, and many priority debts are also nondischargeable.

The system ensures payment of essential debts, such as nondischargeable support obligations and taxes, before less important commitments like credit card balances and student loan debt. So if you owe back taxes to the IRS—a nondischargeable debt—and the trustee sells your nonexempt RV, the trustee will likely apply the proceeds to your tax debt, and you'll owe less after your case ends.

Example. Carter couldn't make the monthly payment on his credit card balance of $25,000. He also owed $2,000 in child support arrearages and $1,500 from the prior year's taxes. Needing a fresh start, he filed for Chapter 7 bankruptcy, even though he couldn't protect his skeet shooting guns worth $10,000. The trustee sold the guns and, following payment priority rules, paid the child support and tax arrearages in full before applying the balance toward the credit card debt. Because the remaining credit card balance qualified for a discharge, Carter was free of debt at the end of his case.

Voluntary Debt Repayment

You might decide to repay a debt that would be discharged in your bankruptcy—especially if you owe money to a friend or relative or wish to continue seeing a particular medical provider. Because you can't use assets that creditors are entitled to receive, the most straightforward approach would likely be to wait to make the voluntary debt repayment until after your bankruptcy closes.

Need More Bankruptcy Help?

Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

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Helpful Bankruptcy Sites

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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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