What Bankruptcy Can and Cannot Do
Bankruptcy is a powerful tool for debtors, but some kinds of debts can't be touched.
Bankruptcy is good at wiping out credit card debt, but you may have trouble eliminating some other kinds of debts, including child support, alimony, most tax debts, student loans, and secured debts.
What Bankruptcy Can Do
If you are facing serious debt problems, bankruptcy may offer a powerful remedy. Here are some of the things filing for bankruptcy can do:
Wipe out credit card debt and other unsecured debts. Bankruptcy is very good at wiping out credit card debt. Unless you have a special "secured" credit card, your credit card balance is an unsecured debt -- that is, the creditor does not have a lien on any of your property and cannot repossess any items if you fail to pay the debt. This is precisely the kind of debt that bankruptcy is designed to eliminate. Besides credit card debt, you may have other unsecured debts, and bankruptcy can wipe these out as well.
If you file for Chapter 13 rather than Chapter 7, you may have to pay back some portion of your unsecured debts. However, any unsecured debts that remain once your repayment plan is complete will be discharged.
Stop creditor harassment and collection activities. Bankruptcy can stop creditor harassment, but if the "harassment"' is simply phone calls and letters, there are simpler ways to stop it. If the harassment is more serious -- if the creditor is about to repossess your car or foreclose your mortgage, bankruptcy can help, at least in the short term, and perhaps longer if you just need a little time to get through a temporary crisis.
Eliminate certain kinds of liens (but not others).
A lien is a creditor's right to take some or all of your property. A bankruptcy court's discharge of your debts wipes out your direct obligation to pay your creditors, but if the creditor has a lien on your property, the lien will survive -- unless you invoke certain procedures during your bankruptcy case. If the creditor has taken you to court and slapped a judgment lien on your property, you may be able to remove it.
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