Bankruptcy can do many things to help a debtor get a fresh start.
An automatic stay is granted to prevent creditors from harassing you. In Chapter 7 bankruptcy, your debts are forgiven. In Chapter 13 bankruptcy, you are given an opportunity to pay back your debt at a rate you can afford. You are allowed to keep some of your assets to prevent you from becoming destitute and a burden to the State.
Bankruptcy is not without limitations regarding the protections it can offer. There are circumstances that could lead to you losing exempt property, and there are some debts that cannot be forgiven. When you are filing for bankruptcy, watch out for the following limitations.
A secured debt is a debt where the creditor has been granted a property interest in something you own. You can grant almost anything to a creditor as collateral for a loan. If the creditor has perfected their interest in that loan, that collateral belongs to the debtor if you default. Car loans and home mortgages are the most common forms of secured debt. Bankruptcy cannot eliminate these debts, but it can force the creditor to take payments over time, and it can prevent you from having to pay any additional fees. If you wish to maintain possession of the secured item, then you must continue to repay the debt. If you choose to give up the item, the bankruptcy proceeding will then wipe away that debt.
Certain debts cannot be wiped away by a bankruptcy proceeding because of the nature of the debt. Most of these special debts are court ordered debts.
These debts include:
- Child support payments
- Alimony payments
- Criminal fines
- Court restitution orders
- Student loans
These are all protected by the law and must be repaid.
The bankruptcy wipes away your debt as part of the process, but it does not do the same for anyone who co-signed a loan with you. Even while you are in the bankruptcy process, co-signed people may still liable for that debt.
Debts Accrued after Bankruptcy has been Filed
The bankruptcy process wipes away almost all debts incurred before you file. It does not wipe away any subsequent debts. Once you have filed, your debts are forgiven and you are allowed a fresh start. Any new debts are incurred as part of that fresh start and are not subject to the bankruptcy.