Bankruptcy can provide some much-needed relief from overwhelming financial obligations. However, it does not necessarily mean you will be free from all debts. The goal is to give you a fresh start, but certain debts stick around even after completing the process.
Knowing what bankruptcy can and cannot do is crucial as you consider your options and plan for what lies ahead.
The type of bankruptcy matters
Chapter 7 bankruptcy may wipe out a large portion of your debts. However, some of your assets could be sold to repay creditors if they exceed a specific limit. On the other hand, Chapter 13 involves a repayment plan where you pay off debts over time. While this allows you to keep your assets, it also means you’re not free from debt.
Not all debts are dischargeable
Some debts do not qualify for discharge – the legal term for debt elimination in bankruptcy. These include child support, alimony, certain tax debts and student loans (in most cases). Such debts are generally not dischargeable, and you will still be responsible for these obligations.
For secured debts or those tied to assets, like a mortgage or car loan, you can choose to discharge your liability. However, you may have to give up the collateral if you don’t repay secured loans. Chapter 7 bankruptcy discharges most unsecured debts like utility bills, credit card debt, payday loans and phone bills.
Bankruptcy is not a one-size-fits-all solution
How bankruptcy will impact you depends on the unique aspects of your situation. Seeking legal guidance is essential to understanding how everything works and navigating the complexities involved in the process. It can go a long way in protecting your interests as you work towards securing your financial future.
