What Bankruptcy Cannot Do

A lot gets discussed around the consequences of bankruptcy—how to rebuild your credit and what your financial future could be like after filing. It is equally important to discuss what bankruptcy cannot do and the debt issues that it won’t resolve.

Before deciding if the cost and repercussions of bankruptcy are something you are willing to take on, you should know what you stand to gain. That may be an odd way of looking at it. But bankruptcy is an opportunity to start over, correct past mistakes, and eventually rebuild. By understanding what bankruptcy cannot do, you will have a better idea if it is something you should consider.

Liens, Mortgages, And Your Home

When you meet with a lawyer to discuss the possibility of filing for bankruptcy, talk about the impact it may have on your home. Because when you file for Chapter 7 bankruptcy, your mortgage can be eliminated. However, this will not take the creditor’s lien off your house

That can be a strange concept to grasp. Creditors who loan you money for cars and homes usually have liens on what you bought. If you don’t pay the debt, the creditor can seize the property to reclaim its money. 

Even though the mortgage is gone, the lien is still in place. The upside of this is that you cannot be sued, nor can the court garnish your wages (a judicial lien). But the creditor can take your property until you pay off the debt you owe.

Again, you must discuss all your options with an attorney because there are ways you can keep your home even after filing for bankruptcy. 

Other Debt That Will Remain

These payments will still exist for divorced people obligated to pay alimony and/or child support. And they will remain the same. Alimony and child support can be adjusted based on your financial circumstances, but this does not happen through a bankruptcy discharge.

Student loans are not guaranteed to be eliminated. They can be, but you and your attorney will have to show that any future payments you make would create an undue hardship. Any taxes you owe are also not guaranteed to be erased. Again, this doesn’t mean that some of your tax debt can be reduced, but Chapter 7 does not directly forgive them.

Lastly, the money you owe as a part of a personal injury settlement or fines imposed on you as punishment will not be eliminated through bankruptcy.

Hedtke Law Group

At the Hedtke Law Group, we work to discover new ways to give our clients a fresh start. That is one of the reasons why we are the only attorneys in the Inland Empire who offer a credit rebuild. Contact us today to schedule your free case evaluation.