Tidy up when filing bankruptcy

Automatic electronic bill paying, unchecked, can wreak havoc with your bankruptcy case.  It doesn’t threaten your discharge, but it has the potential to confuse and irritate everyone involved.

For most purposes, the rights of the debtor and his creditors, are fixed according to the facts on the day the case is commenced. Important issues are: how much money is in the bank?  how much is owed to each creditor?  what does the deed to real estate show on that day?

If the debtor forgets to cancel all automatic deductions to his bank account, a creditor may get paid after the filing of the case who shouldn’t/needn’t be paid.  The draft may overdraw the account, triggering overdraft fees.  

Recently I’ve seen two variations on this theme:  in one, the automatic withdrawal from the bank account was tied to a credit card.  When there wasn’t enough money in the account after filing to make the payment, the bank, per the standing instructions, charged enough to the associated credit card to pay the bill.  All of a sudden, my client has a new, post bankruptcy charge on his credit card, and the creditor got money he wasn’t entitled to.

In the second case, the debtor was a corporation owned by my client.  A creditor presented its draft for payment from the corporation’s bank account after the filing, and the bank and the trustee now think my client was trying to misappropriate the money!

Moral of the story:  before you file your bankruptcy case, tidy up your banking:  stop payment on any post dated checks; cancel all automatic payments from the account; de-couple the bank account and any credit cards, etc.