Bankruptcy can absolutely help you get rid of debt. Chapter 7 eliminates what you owe after assets are liquidated and as much debt as possible is paid back. For instance, you may owe $50,000 and have $10,000 in nonexempt assets. The other $40,000 is forgiven.
That said, it is important to remember that bankruptcy does not address all types of debt. Some can remain even after a successful bankruptcy filing. Below are seven examples:
- Debt that got overlooked and was never listed during the bankruptcy.
- Private and public student loans. In very rare cases are student loans discharged, but most are not.
- Debts from a lawsuit after you caused an injury or a death — in a drunk driving accident, for example.
- Back taxes, like income taxes, that are still outstanding. The government offers its own payment plans, so bankruptcy does not apply.
- Other debts that you owe to the government, such as fines owed after a criminal case.
- Any money you owe due to a court order after a family law case. For instance, if you were ordered to pay $1,000 per month in child support, that obligation remains after bankruptcy.
- Any other amounts that you owe for legal penalties, no matter how minor. For example, perhaps you have two outstanding speeding tickets or a parking ticket.
Bankruptcy can address many things, from massive credit card debt to personal loans you acquired. It is very important to understand exactly what legal steps to take and what it can and cannot do. This allows you to choose the best options for your financial future as you seek a fresh start.
Source: Money Under 30, “When you need to file bankruptcy,” David Weliver, accessed April 18, 2018