Understanding Bankruptcy, Jul. 26, 2018

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Question: Why is your lender making it harder to make your payments?

You tried every possible way to avoid it, but you finally decided that you had no choice-you filed a bankruptcy. But you want to continue to pay some creditors, like your house payment and your car payment. Yet when you go to make a payment online, or set up a bank draft, you find that your lender won’t let you do it.

It’s tempting to think that they want you to default so they can take your stuff, but I really don’t think that’s the case. There is a reason why lenders won’t set up automatic payments, or continue to draft payments that you always paid that way, or sometimes even send you bills. That reason is based in the automatic-stay provisions of the Bankruptcy Code, which is one of the most-powerful protections offered by the Code, and one of the main reasons people file bankruptcy.

The automatic stay provided for in Section 362 of the Bankruptcy Code is effectively a court order that goes into effect, automatically, as the name would suggest, when the case is filed. The automatic stay prevents creditors taking any action to collect a debt, including asking you to make a payment (i.e., send a bill) or draft your bank account.

So in order to avoid even a technical violation of the stay, lenders will stop sending bills/statements, stop drafting payments, and even stop allowing you to make online payment, depending on the type of draft.

Trust me, they want you to make your payments. You may just have to do it the old fashioned way – by check or money order.

Next Week’s Question: Your bankruptcy information: Is it more like fish or red wine?


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