Filing for Bankruptcy: What It Can and Cannot Do


Bankruptcy is a legal process through which individuals and businesses can get relief from their debts. It provides a fresh start and a chance to rebuild financial health. However, there are several misconceptions about bankruptcy. People often need help understanding what it can and cannot do. In this article, our debt relief lawyer will discuss what bankruptcy can and cannot do.

What Bankruptcy Can Do

1. Discharge Debts

One of the primary benefits of bankruptcy is that it can discharge most unsecured debts. Unsecured debts are not backed by collateral, such as credit card debts, medical bills, and personal loans. Once the debts are discharged, the debtor is no longer legally obligated to pay them. This can provide significant relief to individuals who are struggling with overwhelming debts.

2. Stop Collection Actions

When a debtor files for bankruptcy, an automatic stay is put in place. This means creditors cannot take any collection actions against the debtor, such as calling, emailing, or suing. The automatic stay can also stop foreclosure proceedings, wage garnishments, and repossessions.

3. Protect Assets

Bankruptcy can also protect a debtor’s assets from being seized by creditors. In a Chapter 7 bankruptcy, exemptions can protect certain property, such as a primary residence, a car, and personal belongings. In a Chapter 13 bankruptcy, the debtor can keep all their assets but must repay a portion of their debts through a court-approved repayment plan.

4. Improve Credit Score

Although bankruptcy can have a negative impact on a debtor’s credit score, it can also be an opportunity to improve it. Once the debts are discharged, the debtor can start rebuilding their credit by making timely payments on their remaining debts, such as a mortgage or a car loan. Over time, their credit score can improve, and they can qualify for new credit.

What Bankruptcy Cannot Do

1. Discharge All Debts

Bankruptcy cannot discharge all types of debts. Some debts, such as student loans, taxes, and child support, are not dischargeable in bankruptcy. This means that even after bankruptcy, the debtor will still be obligated to pay these debts.

2. Protect Co-Signers

If a debtor has a co-signer on any of their debts, bankruptcy will not protect the co-signer. The co-signer will still be responsible for paying the debt, even if the debtor’s obligation is discharged.

3. Stop Certain Legal Actions

Bankruptcy cannot stop all legal actions. Some legal actions, such as criminal proceedings or lawsuits for damages caused by the debtor’s intentional actions, are not affected by bankruptcy. The automatic stay also does not apply to certain actions, such as child support or eviction proceedings.

4. Erase Credit History

Finally, bankruptcy cannot erase a debtor’s credit history. Bankruptcy will remain on the debtor’s credit report for up to ten years and can make it difficult to obtain credit in the future. However, as mentioned earlier, over time, the debtor can rebuild their credit by making timely payments on their remaining debts.

Knowing What Bankruptcy Can and Cannot Do Is Important

Bankruptcy can be a powerful tool for getting relief from overwhelming debts. It can discharge most unsecured debts, stop collection actions, protect assets, and improve credit scores. However, it is essential to understand what bankruptcy can and cannot do before filing. Bankruptcy cannot discharge all debts, protect co-signers, stop all legal actions, or erase credit history. Therefore, it is important to consult with a bankruptcy attorney to determine the best course of action for your specific financial situation.

Angela R. Owens is a seasoned bankruptcy attorney who services clients in Plano, Allen, Frisco, Dallas, and nearby regions. Contact us to schedule your consultation!

Angela R. Owens

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