In Brief, What Bankruptcy Can and Cannot Do

For whatever reason you are filing for Bankruptcy it is important to know which debts will be eliminated and which debts will remain. That’s why it is important to seek the services of an experienced Bankruptcy attorney to aid in your choice on which Chapter to file.

Which debts Chapter 7 and Chapter 13 can and cannot help with.

Bankruptcy Can:

Wipe out unsecured debts, debts which the creditor does not have a lien on any of your property and cannot repossess any items if you fail to pay the debt. Unsecured debt, like credit card debt, is exactly the type of debt Bankruptcy is designed to eliminate. However, Chapter 13 and Chapter 7 deal with the discharge of unsecured debts differently. When you file for Chapter 13 they may have to pay a portion of their unsecured debts through their payment plan. After successful completion of their payment plan the remaining unsecured debt will be eliminated.

Bankruptcy Can't:

Prevent a secured creditor from repossessing property. If you have a secured debt, a debt where the creditor has a lien on your property and can repossess it if you don't pay the debt, bankruptcy can eliminate the debt, but it does not prevent the creditor from repossessing the property unless you invoke certain procedures during the bankruptcy case.

Eliminate child support and alimony obligations.Child support and alimony obligations survive Bankruptcy.

Wipe out student loans. Student loans cannot be discharged through bankruptcy unless you can show that repaying the loan would cause "undue hardship.” The you must show not only that you cannot afford to pay the loans now, but also that you have very little likelihood of being able to pay them in the future.

Eliminate most tax debts.Eliminating tax debt in bankruptcy is not easy, but it is sometimes possible for older debts for unpaid income taxes. There are many requirements to be met, however.

Eliminate other non-dischargeable debts.The following debts are not dischargeable under either Chapter 7 or Chapter 13 bankruptcy:

-Debts not listed on your bankruptcy papers, unless the creditor learns of your Bankruptcy case

-Debts for personal injury or death caused by your intoxicated driving, and

-Fines and penalties imposed for violating the law, such as traffic tickets and criminal restitution.

If you file for Chapter 7, debts which cannot be discharged in Bankruptcy will remain when the case is over. If you file for Chapter 13, these debts will have to be paid in full during your repayment plan. If they are not repaid in full, the balance will remain at the end of the case.

There are some situations in which the judge may decide dischargeable debts should survive the Bankruptcy. These include debts incurred through fraud, such as lying on a credit application or passing off borrowed property as your own to use as collateral for a loan.

What Only Chapter 13 Bankruptcy Can Do:

Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan where you make up the missed payments over time while staying current on your regular monthly payments. To make this plan work, you must be able to demonstrate that you will have enough income in the future to support such a repayment plan.

Allow you to keep nonexempt property.You don't have to give up any property in Chapter 13 because you use your income to fund your repayment plan.

"Cram down" secured debts that are worth more than the property that secures them. You can sometimes use Chapter 13 to reduce a debt to the replacement value of the property securing it, then pay off that debt through your plan.

The author, Ben W. Koyl, is an attorney located in Chicago, IL. He is the principal of the Law Office of Ben W. Koyl, P.C. with offices located in the Chicago Loop, Beverly Woods / Blue Island, and Joliet, IL. The firm's website is http://www.chicagobklaw.com.