What Bankruptcy Can and Cannot Do

Buchalter & Pelphrey Attorneys At Law

When considering bankruptcy, many people have unrealistic expectations. Bankruptcy is both underestimated and overestimated, which is why it is critical to learn everything you can about this process before filing your petition. Once you understand what bankruptcy can and cannot do for your financial situation, you will be able to make an informed decision that helps you achieve financial freedom as soon as possible.

Without further ado, here is a brief list of what bankruptcy can accomplish—and what may not be possible.

The Power of Bankruptcy

The benefits of bankruptcy will vary depending on the chapter you file, your unique circumstances, and other factors.

Generally, however, bankruptcy can:

  • Temporarily halt all collection actions. Thanks to the automatic stay, bankruptcy immediately prohibits all creditors, lenders, and debt collectors from contacting you about your debt, suing you, continuing to satisfy existing court judgments, and even foreclosing on your home or repossessing your vehicle.
  • Discharge some or all of your debt. Dischargeable debts commonly include medical bills, back rent, unpaid utility bills, credit card debt, and other unsecured debts. Once the debt is discharged, the creditor or collection agency can no longer come after you for it.
  • Help you reduce business debt without losing your company. Chapter 11 can allow companies to restructure and reduce debt over several years without going out of business. Subchapter V of Chapter 11 is a new section that is specifically for small businesses.
  • Give you the time you need to rescue your home or vehicle. When you default on your mortgage or automobile loan, your lender may foreclose on your home or repossess your car. However, Chapter 13 is particularly useful for those in this situation because it provides 3-5 years of automatic stay protection, during which the filer makes monthly payments toward their debt. By including missed payments in this plan, the filer can cure the default and eliminate the risk of foreclosure or repossession by the end of their plan.
  • Provide a fresh start. Because of the debt discharge, bankruptcy allows debtors to regain their financial footing and build a more secure future. While it may negatively impact your credit, this effect is temporary, and those who file bankruptcy are often able to rebuild their credit within several months or years.

Bankruptcy may be more beneficial for some debtors than for others. To learn what bankruptcy may do for you, you will need to consult an experienced attorney.

The Limits of Bankruptcy

Despite the above benefits, bankruptcy may not automatically fix all your financial problems.

More specifically, bankruptcy might NOT:

  • Discharge all your debts. Some debts are explicitly non-dischargeable, and others are simply very difficult to discharge. Just a few examples of non-dischargeable debts include child support, alimony, recent tax debt, and criminal fines or penalties. Debts that can only be discharged in very limited circumstances include older tax debt, federal student loans, and divorce settlements. Additionally, if you max out your credit cards immediately before filing bankruptcy and attempt to discharge this debt, you may be accused of fraud.
  • Permanently prevent foreclosure or repossession. While the automatic stay (a court order that takes effect for the duration of your case) may temporarily prevent a lender from seizing your home or vehicle, this protection will not last forever. If, for example, you are still behind on payments by the time your bankruptcy case is over, you still may experience foreclosure or repossession. This may be the case even if the court discharges your mortgage or automobile loan debt, as a discharge does not automatically strip the lien off of your home or vehicle.
  • Allow you to keep high-value assets. Chapter 7 bankruptcy involves a liquidation process. While most filers keep everything they own, you should not file Chapter 7 expecting to keep luxury vehicles, vacation homes, and other unessential assets. What you can shield from liquidation will depend on your state’s bankruptcy exemption laws, and they typically do not allow you to keep anything more than what you need to live a normal, stable life.

Ultimately, bankruptcy is not without its limits or potential consequences. However, with the right guidance, bankruptcy can help you achieve relief from overwhelming debt within a few months or years.

Discuss Your Options with Our Legal Team

What do you hope bankruptcy will accomplish? What are your concerns? When we ask you these questions, we will listen intently to your answer, and we will provide high-quality counsel that addresses your unique circumstances. When you bring your case to Buchalter & Pelphrey Attorneys At Law, you can trust our team to treat you with the utmost respect while we develop a high-powered strategy for your financial crisis.

Call (321) 320-6088 or contact us online to schedule your courtesy evaluation today.

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