6 Things Bankruptcy Can or Can’t Do

Being in debt is no fun. It can mean harassing phone calls, sleepless nights and a constant juggling of what you can pay and what you can’t. It may be time to consider filing bankruptcy. Here are 6 considerations as you make your decision.

1. Clear Your Credit Card Debt. Credit card debt is “unsecured” debt (the only exception is a secured cred card where you have tied something to the credit card if you can’t pay). That means that you can wipe out all the balances on unsecured credit cards like your Visa or department store cards if you file Chapter 7 bankruptcy. The merchant or bank cannot put a lien on your property or repossess your property. If you file Chapter 13 bankruptcy, you may have to pay back some portion of the debt. When you fulfill your repayment plan, any balances that are left will be erased.

2. Erase Medical Bills. Medical bills are the reason that about 62% of bankruptcies are filed. Like credit card debt, these are unsecured debts and can be cleared in Chapter 7 bankruptcy. Even though about 72% of those filing for bankruptcy because of medical costs had medical insurance, they were left with significant debt that led to the filing.

3. Stop Those Phone Calls – and other collection activities. There are ways to stop annoying, threatening phone calls or letters – basically they’re against the law. However, if our car is about to be repossessed or your mortgage holder is about to foreclose, filing bankruptcy can stop those actions.

4. It Can’t Eliminate Child Support Or Alimony. If you owe back child support or alimony to your ex, bankruptcy cannot discharge these debts. Even after the bankruptcy is discharged, you will still owe these debts – just as if you’d never filed.

5. Student Loans Are Not Cleared. There are some very special circumstances when a student loan might be forgiven, but it involves the proving it would provide “undue hardship” and that you will not be able to pay the loans in the future. It’s a very difficult path so expect that your student loans will remain.

Back Taxes Must Be Paid. Again, some older unpaid income taxes might be forgiven, but it is unlikely. Your tax debt will most likely remain for you to pay after the bankruptcy is over.

When you declare bankruptcy, you want a fresh start so you can get your financial life – and your life – back on track for a successful future. You need an experienced lawyer who understand all the different laws that govern bankruptcy on your side. If you are thinking of filing, first talk to a bankruptcy lawyer and get expert advice.

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