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What Bankruptcy can and can’t Do for You

People dealing with financial hardship can choose to file for bankruptcy to help them realign their finances and get back on track. According to the website of attorney Ryan J. Ruehle, LLC, with bankruptcy, people have the option to protect their most important assets while trying to restore their finances; and one of the ways on how bankruptcy does it is by eliminating or discharging certain types of debts.

Bankruptcy helps alleviate financial problems by wiping out unsecured debts, or debts not backed by an underlying asset (collateral). Credit card debts, including late payments and overdue, are just some of the many examples of dischargeable debt. Other common types of dischargeable debts are the following:

  • Medical bills
  • Utility bills (past dues only)
  • Debts in collections
  • Loans from family, friends
  • Auto accident claims, excluding those involving DUI

However, it is very important to note that not all debts are dischargeable under bankruptcy protection. Here are some types of debts that a bankruptcy filing cannot wipe out:

  • Domestic support obligations, such as spousal support and child support
  • Secured loans, or loans backed by an asset. This also means that if you fail to pay for a secured debt, bankruptcy cannot prevent a secured creditor from repossessing the property tied to it
  • Tax debts, unless they satisfy certain conditions
  • Fines caused by violating the law
  • Debts associated with claims of personal injury or wrongful death caused by your negligence (ex. drunk driving)

Furthermore, some debt categories are dischargeable depending on the type of bankruptcy filed. Chapter 13 bankruptcy, for instance, can eliminate some types of debts that a Chapter 7 bankruptcy can’t eliminate. These include certain debts arising out of property settlement between divorcing spouses (for instance, debts assigned to you on a joint credit card with your ex), malicious or willful damage to property (but not willful injury to another person), and debts incurred to settle non-dischargeable taxes.

Bankruptcy is a powerful tool that can help you work towards financial freedom. You only need to understand more about your circumstances in order to choose which type of bankruptcy best suits your situation.