Bankruptcy provides a fresh start for people who have accumulated so much debt that they cannot meet their payment obligations. It can accomplish many useful things, such as stopping wage garnishment and other forms of debt collection practices, preventing home foreclosure or vehicle repossession, and restoring utility service. However, bankruptcy is not a cure-all for people with debt. Today I'll take a look at some things bankruptcy cannot accomplish. If the following issues relate to your situation you might want to explore your non-bankruptcy options. First, bankruptcy law sets aside certain types of debt for special treatment. These are referred to as priority debts and it's not possible to eliminate these obligations absent special circumstances. Some of the priority debts are recent taxes, domestic support obligations (such as alimony and child support), government-imposed fines, administrative fees, and most student loans. Second, bankruptcy doesn't eliminate the rights of secured creditors. Secured creditors are those creditors who are protected by a mortgage or another type of lien on property in your possession. This collateral is what protects or secures the creditor: if you don't make your payments it can repossess the property. Common types of secured creditors are mortgage and auto loan companies. Chapter 13 bankruptcy allows you to spread out payments to secured creditors over time, but it's always the case that you can't keep the collateral if you don't meet your payment obligations. Of course, if you don't care about the property and are willing to give it up you can eliminate your personal liability for the loan via bankruptcy. This would ensure that if your secured creditor repossesses the property and sells it at auction and garners less than what you owe, you cannot be sued for the difference. Third, bankruptcy won't protect co-signers on your debts. This means that when your obligation to pay the debt is eliminated through bankruptcy your co-signor will still be on the hook for the debt. For this reason, when you file for bankruptcy you must list all the people you've co-signed for and all the people who've co-signed for you. The court will notify these people of your filing. This situation is a cause for concern for many of my clients but it's important to remember that eliminating your legal obligation to pay a debt though bankruptcy does not prevent you from voluntarily assuming a debt. To protect a co-signor you can always reaffirm a debt, or reach an agreement with your co-signors whereby you'll reimburse them if your creditor goes after them. Lastly, your bankruptcy won't have an effect on debts you accumulate after you file. However, this rule cuts both ways. While you cannot eliminate post-filing debts, the bankruptcy court doesn't have jurisdiction over your post-filing income either in most cases.
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