If you’re reading bankruptcy blogs, it may be because you have an intractable debt problem. Maybe the problem is related to a divorce, a job loss, an expensive health issue, or a situation that seems like a business failure. Perhaps you’ve come to the realization that it’s impractical – or impossible — to keep up with all your debt payments. Maybe it’s time to consult a legal professional about how to get out from under the burden.
It’s important to know that Chapter 7 and Chapter 13 bankruptcy filings are profoundly powerful tools when they are used in an intelligent, strategic manner. But it’s also crucial to recognize that bankruptcy has significant limitations. (Think of a good bankruptcy filing as a sharp sword, not a magic wand.)
Problems that can be solved through bankruptcy
If you qualify to file for bankruptcy under Chapter 7, you may be able to discharge (like, get rid of entirely) unsecured debts that are essentially ruining your financial life. In most cases, credit card debt, medical debt (from hospital visits, surgeries, specialist treatments, tests and everything else), personal loans and other non-collateralized debts can be done away with.
Many kinds of secured debt can also be addressed in a decisive manner, particularly when a Chapter 13 payment plan is employed. For example, you may be able to bring your mortgage current and prevent home foreclosure, avoid repossession of an important vehicle, or keep other kinds of creditors at bay.
Problems that cannot be solved through bankruptcy
Back to the sword and the magic wand. No matter how knowledgeable and creative your attorney is, bankruptcy has important limitations, some of which have to do with fundamental laws of nature and mathematics:
- Bankruptcy can’t increase your income — it definitely won’t help you afford a house or car that your income won’t support.
- Bankruptcy probably won’t take away your student loan balances or child support arrears.
- Bankruptcy won’t make your tax debt disappear. (It may be able to help you conquer certain tax problems.)
- In the U.S., bankruptcy is related to ancient notions of debt relief or forgiveness, but it is subject to specific federal laws — the bankruptcy code — that your lawyer should have mastery of.
Get the advice you need
Every debt situation is different. Bankruptcy may or may not be the right thing for you. Talk to an experienced attorney about how to start dealing with your debt.