If you've been considering filing for bankruptcy because you feel overwhelmed with debt or because you simply want a fresh start, there are a few things you should understand about what bankruptcy can and cannot accomplish. Following is a brief description of what types of debt are forgiven in a bankruptcy proceeding and which you remain responsible for regardless.
Eliminating Unsecured Debts
Filing for bankruptcy will eliminate most, if not all, of your unsecured debts. Unsecured debt is that debt for which the creditor has no lien over property or other physical possessions. Debt you've accumulated from credit cards is the most common type of unsecured debt. Filing for a chapter 7 bankruptcy, though, may eliminate more unsecured debt than filing for a chapter 13 bankruptcy.
A chapter 7 bankruptcy may be the better option for those with significant unsecured debt because it can relinquish the hold of a number of different categories of debt. These include things like collection accounts, medical bills, debts incurred in the course of business (for those who own businesses), and even certain civil court judgments.
Relief From Creditor Harassment & Collections
An added benefit of filing for bankruptcy is what is known as an automatic stay. An automatic stay is essentially a ruling from the courts that prevents creditor and collection agencies from contacting you. Once your bankruptcy filings have been processed, creditors and bill collectors are prohibited from contacting you for any reason regarding your previously outstanding debt.
Additionally, an automatic stay will cease any attempts on the part of lenders to repossess your vehicle. The stay will also put a halt on any foreclosure proceedings that may be under way regarding your personal residence or business.
Finally, wage garnishment, yet another collection tactic that creditors often employ in an attempt to get their money back, will cease once an automatic stay has been issued. These last three points--the immediate prevention of your home and vehicle's repossession, and the freedom from having your wages garnished or your bank accounts levied--is often the deciding factor in whether or not to proceed with a bankruptcy filing.
Debts That Remain
Unfortunately, bankruptcy cannot erase every class of debt. Some of the debts that you will still be responsible for even after filing for bankruptcy include child support and alimony payments. Debts related to student loans are also unaffected during the bankruptcy proceedings, at least most of the time. In certain instances you may be able to have your student loans absolved if you can demonstrate that repaying them would cause you undue hardship. Any outstanding tax debts regarding unpaid taxes or penalties incurred for late filings are also outside the scope of bankruptcy.
A bankruptcy attorney, like those at Shoemaker & Dart P.S. Inc, can help you decide whether a chapter 13 or chapter 7 bankruptcy filing is most appropriate for your situation, depending on what category your debt your current obligations fall under.
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