You can get rid of your financial problems by filing for bankruptcy. It can help you eliminate some debts while others survive bankruptcy filing and discharge. However, all your obligations cannot be removed through bankruptcy. For example, student loans, alimony, child support, and tax debts survive bankruptcy.
Things you can expect from the bankruptcy
Bankruptcy is meant to provide you with a fresh financial start. Irrespective of which chapter of bankruptcy you file (Chapter 7 or Chapter 13), there are some things that bankruptcy can help you with. These include:
- It stops collection activities and creditor harassment – The automatic stay prevents creditors from garnishing wages, filing lawsuits, and contacting you.
- It stops foreclosure, eviction (temporarily), or repossession – With automatic stay, these actions are put on hold but can be resumed after bankruptcy completion. If the landlord has an eviction notice against you, bankruptcy cannot stop it. You can catch up on due arrearage through the Chapter 13 repayment plan.
- It eliminates some debts – Nonpriority unsecured debts, including overdue utility payments, medical bills, credit card debts, personal loans, etc., can be eliminated. Any debts incurred through secured credit cards will be recovered by returning the purchased item.
- Removes secured debts on giving up of attached property – If you cannot afford to pay for any secured debt, you can wipe that debt by giving up the collateral securing the loan
Things possible through Chapter 13 bankruptcy only
- It can stop mortgage foreclosure – You can catch up on missed payments and remain current on them through the Chapter 13 repayment plan. The lender will be forced to stop foreclosure.
- You can keep property not protected by bankruptcy exemptions – Your non-exempt property can be protected from liquidation if you can pay your unsecured creditors an amount equivalent to them through your repayment plan.
- You can come down your secured debts if the property is less than the amount owed – If the price of property has reduced since you bought it, You can propose a cram down of the loan, only if you had purchased the car more than 30 months before the bankruptcy filing. A residential home mortgage cannot be reduced using the cram down option.
Things bankruptcy cannot help you with
- Preventing secured creditors from foreclosing or repossessing a property – If you have a lien on a property, bankruptcy cannot eliminate it. Unless the debt is paid in full, the lien allows the lender to take the property and auction it to get the proceeds. This happens in Chapter 7 bankruptcy, where a home mortgage is wiped out. However, if the lender’s lien remains, you can still lose your home after the automatic stay is lifted.
- Getting rid of child support and alimony obligations – These debts are unsecured priority debts that are not eliminated through bankruptcy, and you owe them in full.
- Get rid of student loans except in special circumstances – Student loans cannot be discharged through bankruptcy unless you can prove that paying for them will cause you undue hardship.
- Get rid of most tax debts – Bankruptcy cannot eliminate all tax debts. However, you might be able to get rid of some older unpaid ones.
- Get rid of other non-dischargeable debts – Debts that you forgot to list in your bankruptcy papers, those incurred due to penalties, and criminal restitution cannot be eliminated.
- Debts related to fraud – If a creditor files a lawsuit for a fraud-related debt, you will not get a discharge for the same under bankruptcy.