Many people make the decision to file for bankruptcy each year. For some, it proves to be a great way to stop debt collection efforts and get a fresh financial start. With that said, though, it is not always the “cure all” solution people hope it will be. Bankruptcy cannot fix every single problem, and it’s important to understand the basics of what bankruptcy can and can’t do before you file.
To start off with, it is important to understand that there are different types of bankruptcy and that the different types do different things.
The two most common types, Chapter 7 and Chapter 13 bankruptcy, can both eliminate unsecured debt, like debt related to credit cards, personal loans, and the like. However, Chapter 13 bankruptcy cannot eliminate as much debt as Chapter 7 since this type of bankruptcy does still require repayment of many types of debt over a set number of years.
Both types of bankruptcy also provide opportunities to debtors to hold on to some assets, and, with Chapter 13 bankruptcy, there is even some reduction of secured debt possible.
No matter how needed a bankruptcy can be, it cannot do or accomplish everything. For example, no bankruptcy can completely eliminate tax debt or enable you to back out on support obligations, like child support or alimony. Bankruptcy also doesn’t take care of most student loans or of all debt in general, so it’s important to have a realistic view of what it can accomplish for you.
A lawyer can be a great help in terms of helping you to understand the reality of bankruptcy, so be sure to seek legal counsel before filing. That way, you’ll know exactly what to expect and whether or not bankruptcy will help you to accomplish your financial goals.