What Bankruptcy Can and Cannot Do

Bankruptcy may make it possible for financially distressed individuals to:

• Discharge liability for most or all of their debts and get a fresh start. When the debt is discharged, the debtor has no further legal obligation to pay the debt.
• Stop foreclosure actions on their home and allow them an opportunity to catch up on missed payments.
• Prevent repossession of a car or other property, or force the creditor to return property if it has been repossessed.
• Stop wage garnishment and other debt collection harassment, and give the individual some breathing room.
• Restore or prevent termination of utility service.
• Lower the monthly payments on debts, including secured debts such as car loans.
• Allow debtors an opportunity to challenge the claims of certain creditors who have committed fraud or who are otherwise seeking to collect more than they are legally entitled to.

Bankruptcy, however, cannot cure every financial problem. It is usually not possible to:

• Eliminate certain rights of secured creditors. Although a debtor can force secured creditors to take payments over time in the bankruptcy process, a debtor generally cannot keep the collateral unless the debtor continues to pay the debt.
• Discharge types of debts singled out by the federal bankruptcy statutes for special treatment, such as child support, alimony, some student loans, certain court ordered payments, criminal fines, and some taxes.
• Protect all cosigners on their debts. If relative or friend co-signed a loan which the debtor discharged in bankruptcy, the cosigner may still be obligated to repay the loan.
• Discharge debts that are incurred after bankruptcy has been filed.