What Happens to Automatic Payments When I File Bankruptcy?

Watching your bank account drain day after day due to automatic payments causes deep stress and anxiety. You might wake up dreading the notifications of declined transactions and penalty fees. It is very common for people to consider bankruptcy just to break this cycle. At Whitten & Whitten, we have over 30 years of experience helping people file for bankruptcy and take advantage of all the financial relief it offers.

Here is what you need to know about automatic payments and bankruptcy:

• Auto-payments to creditors stop immediately: An “automatic stay” legally prevents creditors from taking money out of your account.
• You may need to set up alternate billing for essentials: You are still responsible for rent and utilities used after you file.
• You may need to cancel extras: Stop auto-pay for gyms and streaming services to protect your account balance.
• Manual payments give you more control: Switching to manual bill pay helps you avoid surprise overdrafts while your case is active.

Will My Automatic Payments Stop When I File for Bankruptcy?

When you file for bankruptcy, a legal protection known as the “automatic stay” immediately takes effect. This court order requires creditors to cease all collection activities, including automatic withdrawals from your bank account for debts like:

• Credit card payments
• Personal loans
• Mortgages
• Car loans
• Collection agency drafts

This provides immediate relief and gives you the space to manage your finances. However, if you plan to keep certain assets, such as your house or car, you must arrange to make manual payments for those loans while your bankruptcy case is pending. The automatic stay stops the auto-debits, but it does not eliminate the need to pay for assets you intend to retain.

What Happens to My Bills That Are Set Up on Autopay?

The automatic stay doesn’t just apply to credit card companies and lenders. To avoid potential legal complications, other entities such as companies, landlords, or service providers may also halt automatic payments from your accounts.

While this may seem helpful, it can actually create new problems if you are not prepared. This is because you are still responsible for ongoing living expenses after filing for bankruptcy. Rent, utilities, and other essential services must continue to be paid moving forward, even though past-due balances may be handled through your bankruptcy.

For example, utility companies cannot shut off your service for missed payments from before you filed. They can, however, charge you for any service you use after your filing date.

For this reason, it’s often recommended to turn off auto-pay and switch to manual payments for essential bills before starting the bankruptcy process. This gives you complete control over which bills are paid and helps you prioritize critical expenses like housing and utilities.

What Automatic Payments Should I Cancel Before Bankruptcy?

Unlike credit card companies and collection agencies, businesses like gyms, streaming services, and subscription box companies are not usually automatically notified of your bankruptcy filing. This means they will continue to attempt to withdraw payments from your account unless you cancel your service with them directly.

It’s recommended to review your bank statements before bankruptcy and cancel all recurring payments for non-essential services, including:

• Streaming platforms
• Gym memberships
• Subscription boxes
• App renewals

If you do not cancel these services and a payment is attempted on an account with insufficient funds, you could face overdraft fees and other bank penalties.

How Can I Avoid Surprise Automatic Withdrawals During Bankruptcy?

Even with the automatic stay in place, creditors may still attempt to collect payments due to processing delays. The best way to avoid surprise withdrawals and potential overdraft fees during bankruptcy is to be proactive. Taking the following steps can help protect your finances:

•  Cancel services directly: Contact each company that has a recurring payment and cancel your subscription. Do not rely on your bankruptcy filing to stop these withdrawals automatically.
•  Revoke authorization with your bank: Inform your bank in writing that you are revoking the authorization for these companies to debit your account. This provides an additional layer of protection.
•  Consult a bankruptcy attorney: An experienced attorney can provide clear guidance on managing your bank accounts and communicating with creditors. They will make sure all necessary steps are taken to protect your assets and prevent unauthorized charges.

You can never be too careful when protecting your finances during bankruptcy.

Don’t Let Automatic Payments Drown You Any Longer

Bankruptcy is a powerful tool that puts an immediate stop to most automatic withdrawals from creditors and gives you the space to reset how your money is managed. But as you have seen, it does not simply “turn everything off.” Some automatic payments stop, others continue, and a few may require you to take action to avoid new problems.

Our experienced bankruptcy attorneys at Whitten & Whitten can help you coordinate your accounts, avoid costly mistakes, and make sure you are fully protected from improper withdrawals. Contact us today to schedule a confidential, judgment-free consultation.