Through the legal process of bankruptcy, individuals or other entities that are unable to pay their creditors back can seek partial or complete relief from their debts. Bankruptcy is typically imposed by a court order that the debtor typically requests. Millions of underwater borrowers, both individuals and companies, have sought relief through bankruptcy. Bankruptcy may not always solve financial issues, but it is a potent tool to protect debtors from future debt collection operations. Moreover, depending on the type of bankruptcy that is filed, bankruptcy can result in a variety of outcomes.
What Bankruptcy Can Do
Debtors can benefit much from bankruptcy, in ways such as:
Get Rid of Unsecured Debt
Bankruptcy filings can assist eliminate unsecured debt, including credit card debt. Personal loans, medical bills, and unsecured business debt are examples of additional indebtedness. These are debts where the creditor does not have a lien on the property and does not have the power to take back the item the debtor bought if the debt is not repaid.
Set a Stay
A bankruptcy’s automatic stay might relieve debt. Upon the filing of a bankruptcy petition, an automatic stay prohibits creditors from making any further collection efforts, including calls, mailings, attempts at repossession, or foreclosure proceedings.
Retain Specific Assets
With a petition, debtors are allowed to preserve some assets known as their exempt property. Certain assets are protected from liquidation and exempt from expropriation under federal and state-specific regulations. An application for bankruptcy can help stop foreclosure and compel the lender to agree to a plan that enables the debtor to make up missed payments.
What Bankruptcy Cannot Do
Although bankruptcy can do a lot of things, here are several things it cannot:
Remove Tax Debt
Typically, a debtor cannot dismiss state or federal income tax debts through a Chapter 7 case. Depending on the kind, size, and timeliness of the debt, a debtor may be entitled to discharge a portion of it in a Chapter 13 case.
Cut Off Support
Child support and spousal support payments typically continue after bankruptcy. When filing under Chapter 13, the debtor must often demonstrate how to back payments will be fully repaid over the repayment plan period.
Get Rid of Your Student Loans
The majority of student debts are not dischargeable in bankruptcy. There are a few exceptions, such as where the borrower can show that paying back the loan would be too difficult owing to their persistent disability.
Because bankruptcy is a complicated area of the law, a bankruptcy attorney can outline the procedure and offer information tailored to the debtor on what the bankruptcy can and cannot do.