The Short Answer
Whether your automatic drafts continue after filing bankruptcy depends on what type of debt they cover. Automatic drafts for secured debts like your mortgage or car payment will likely stop — lenders typically freeze automatic payments once they see your account is in active bankruptcy, and you'll need to pay manually. Automatic drafts for utilities will usually keep running without interruption. Drafts tied to credit cards or unsecured debts should stop entirely, since those creditors are prohibited from collecting payments once the automatic stay is triggered by your filing.
With the ever improving online banking that is available through most banks, it is possible to pay almost all of your bills without ever stepping foot outside of your home. There is no doubt filing bankruptcy can impact every situation of everyday life, but what about paying your bills? What happens if you have everything automatically drafted out of your account each month? Will that continue?
It depends. If your home mortgage or car payment is automatically drafted prior to your bankruptcy filing, then during the duration of the bankruptcy the mortgage company or vehicle creditor will likely stop automatic drafts and require you to manually pay your bill, or will only accept a mailed-in payment. When you file bankruptcy there is an “automatic stay” that goes into effect which states that your creditors cannot contact you for a payment. Many lien holders (such as your mortgage company or vehicle creditor) would rather play it “safe than sorry” and will code your account as being in active bankruptcy and will not automatically draft payments. In some cases, the creditor will not even send monthly statements. If you wish to continue receiving monthly statements, contact the creditor to let them know. They may require you to send in written permission from your bankruptcy attorney, which is common practice with creditors.
If you have your utilities automatically drafted from your bank account, then they will likely continue. If your automatic drafts are for credit cards and other debts, once you file the bankruptcy they should automatically stop since the debt is included in the bankruptcy. Those creditors should not be receiving payments at all – whether automatic draft or otherwise – due to the automatic stay.
Therefore, after you sign your petition and your bankruptcy is filed, it is imperative to make your monthly payments on your secured debts. If your payment is normally automatically drafted, do not think something is wrong in the transaction and sit and wait for it to happen. Go ahead and contact your creditor to find out the best way to make the payment (whether they will accept the payment over the phone or if you will have to mail in your payment). Discuss any confusion you may have with your attorney. Your bankruptcy is one step towards obtaining your financial freedom; you do not want to file bankruptcy and then become behind on your vehicle or mortgage due to the fact that they no longer just took their payment like they were before your bankruptcy filing.
Key Takeaways
- Mortgage and car payment auto-drafts typically stop once a lender codes your account as being in active bankruptcy — do not wait for the payment to pull; contact your lender immediately to arrange manual payment.
- Utility auto-drafts are generally unaffected by a bankruptcy filing and will continue as normal.
- Credit card and unsecured debt auto-drafts should stop after you file — those creditors cannot legally collect payments while the automatic stay is in effect.
- Falling behind on your mortgage or car loan because you assumed the auto-draft was still running is one of the most avoidable mistakes in a bankruptcy case.
- Some mortgage companies and auto lenders will stop sending monthly statements during your bankruptcy — you can request continued statements, sometimes with written authorization from your attorney.
- Contact every secured creditor proactively after filing to confirm how they want you to submit payments going forward.
Attorney Insight
The mistake I see most often is a client assuming their mortgage or car payment is still being pulled automatically — and doing nothing — only to find out weeks later that they've fallen behind. Secured lenders here routinely freeze auto-drafts the moment they see a bankruptcy filing, and some stop sending statements entirely, which makes the problem invisible until it's already serious. Missing even one payment on a car loan or mortgage during an active bankruptcy can put your assets at real risk, since a lender can move to lift the automatic stay if you fall behind. When you file, treat every secured auto-draft as cancelled until you've confirmed otherwise directly with that creditor.
