What Bankruptcy Can't Do

Bankruptcy will not help you hold onto property you haven't paid for or avoid paying child support or alimony, and it will offer only limited help if you are trying to get rid of tax debt or student loan debt. Here's what bankruptcy cannot do for you:

Prevent a secured creditor from repossessing property. A bankruptcy discharge eliminates debts, but it does not eliminate liens. So, if you have a secured debt (a debt where the creditor has a lien on your property and can repossess it if you don't pay the debt), bankruptcy can eliminate the debt, but it does not prevent the creditor from repossessing the property. But after the repossession, bankruptcy does prevent the creditor from coming after you for additional money if the sale of the collateral did not generate enough cash to pay off the amount you still owed.

Eliminate child support and alimony obligations. Child support and alimony obligations survive bankruptcy -- you will continue to owe these debts in full, just as if you had never filed for bankruptcy. And if you use Chapter 13, your plan will have to include repayment of these debts in full.

Wipe out student loans, except in very limited circumstances. Student loans can be discharged in bankruptcy only on a showing of "extreme hardship" -- a standard that is very tough to meet. You must be able to show not only that you cannot afford to pay your loans now, but also that you have very little likelihood of being able to pay your loans in the future. The court will also consider whether you've made a good faith effort to repay at least some of what you owe, taking advantage of the partial-payment options offered under various laws.

Eliminate most tax debts. Eliminating tax debt in bankruptcy is not easy, but it is possible in some cases. There are many requirements to be met.

Eliminate other nondischargeable debts. The following debts are not dischargeable under either Chapter 7 or Chapter 13 bankruptcy. If you file for Chapter 7, these debts will remain when your case is over. If you file for Chapter 13, these debts will have to be paid in full during your repayment plan. If they are not repaid in full, the balance will remain at the end of your case.