In Debt, Filing Bankruptcy May Not Do These 4 Things For You

Largest Bankruptcies

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If you are considering filing for bankruptcy, there should be good reasons for doing so. When it comes to debt, filing bankruptcy might not be able to do these 4 things for you.

Eliminate Certain Rights of Secured Creditors

Secured debt may be discharged when filing a Chapter 7 bankruptcy or in some cases a Chapter 13 bankruptcy, but liens on secured property cannot be discharged when filing bankruptcy.

Some examples of secured debt are car loans and home mortgages. In a bankruptcy filing, you can force creditors to take payments over time, but generally, you cannot keep the collateral unless you continue to pay the debt.

Discharge Debt that Arises After the Bankruptcy has been Filed

When you file for bankruptcy protection, you must list all your creditors during the application process. Depending on the type of bankruptcy you file, the listed debts can be subject to discharge at the close of the bankruptcy. If you incur any more new debts after filing bankruptcy, the new debts cannot be subject to discharge without petitioning the bankruptcy court for inclusion.

Since you will not be eligible for filing a bankruptcy for up to 8 years once you have filed, the new debts are subject to collection activities for the time frame up to the full 8 years.

Discharge Certain Types of Debt

As determined by either state and federal laws, certain types of debts cannot be discharged when filing for bankruptcy protection. These debts include child support, spousal support, certain debts related to divorce, student loans that have not proved an undue hardship, certain court restitution orders, certain criminal fines, and certain taxes.

Exceptions to all of these exempt debts to a bankruptcy filing can be qualified by various circumstances under state and/or federal statutes. For example, federal statutes express income taxes can be discharged by bankruptcy if the taxes have been delinquent for a certain time and comply with certain other legal circumstances.

Eliminate the Obligation of a Co-signer on a Loan

In most cases, filing for bankruptcy protection will not eliminate the obligation of a co-signer who has co-signed on one of your loans. Filing for a Chapter 13 bankruptcy will protect co-signers from credit scrutiny and from default as long as you keep making payments current on the loan that has been co-signed.

A co-signer of a loan has the obligation of making good on any loan co-signed where you have the debt discharged when filing for bankruptcy protection. If you file a Chapter 7 bankruptcy and have the co-signed debt discharged, the effects of you filing bankruptcy and/or the discharge can go against a co-signer’s credit score. In addition, your discharge has no effect on the co-signer’s obligation to honor the note.

Whereas filing for bankruptcy may not do certain things for you, there are plenty of good reasons to file. If you do decide you need to file for bankruptcy protection, please remember,

bankruptcy laws are complicated, and most of you are going to need a bankruptcy attorney to help you file.

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