Considering Bankruptcy

Will Bankruptcy Wipe Out Your Debt?

Before you file your case, you’ll want to think about the goals
because a bankruptcy discharge doesn’t eliminate certain types of debt (called priority obligations). For instance, you can wipe out most credit card obligations, medical bills, and personal loans. But you can’t discharge domestic support obligations (such as child and spousal support), newer tax debt, student loans (unless you can prove undue hardship), and more.

The bottom line is that filing for bankruptcy might not be in your best interest if you can’t get rid of your debt. However, bankruptcy can help in other ways. For instance, you can pay off nondischargeable debt over three to five years in a Chapter 13 case.

(For detailed information about specific debts in bankruptcy, see Your Debts in Chapter 7 Bankruptcy and Your Debts in Chapter 13 Bankruptcy.)roposal).

Is Your Lender About to Foreclose on or Repossess Your Property?

If you have debts secured by your property (such as a mortgage or car loan), your lender can foreclose on the home or repossess the car if you default on your obligation (or take any other property that serves as collateral for the debt). Your lender has this right because of the lien you agreed to when you took out the loan.

In most cases, you can’t wipe out your lender’s lien on the property with a bankruptcy discharge. Even after the bankruptcy, if you don’t make the loan payments, the lender can take back the property.

However, bankruptcy’s automatic stay can stop or delay the foreclosure and repossession process. The relief afforded by the stay in Chapter 7
bankruptcy is usually temporary. But filing for Chapter 13 bankruptcy might allow you to:

  • – keep the property and catch up on your missed payments
  • – reduce the balance of your loan if you qualify for a cramdown, and
  • – eliminate wholly unsecured junior liens from your house through a process called lien stripping.

To learn more about how Chapter 13 bankruptcy can help you save your home or car, see Your Home and Mortgage in Chapter 13 Bankruptcy and Your Car in Chapter 13 Bankruptcy.

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