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What filing for bankruptcy cannot do, Part 1

There are far too many debt relief services out there that give people false promises and set unclear expectations, which is why we wanted to address what bankruptcy cannot do.

We often discuss how bankruptcy can be the best -- and sometimes the only -- option for people facing serious debt, but it’s also important for you to understand what bankruptcy cannot do before you ask for our help filing. 

First, it is often not possible to eliminate certain kinds of “secured” debt through bankruptcy. Secured debt includes debt that is backed by a lien or other collateral, and when you default on the loan, your creditor can take the collateral through repossession or foreclosure.

Common examples of secured debt include a home mortgage, for which the collateral is the home, and an auto loan, for which the collateral is the vehicle.

While it is possible to get the debt discharged in bankruptcy by walking away from the property, it is difficult to keep the property unless you keep making payments toward the secured debt and become current on your payments. This can be done by reaffirming the debt outside of bankruptcy and becoming current on your payments.

There are also “involuntary” forms of secured debt that can be nearly impossible to discharge, such as unpaid property taxes and income taxes. By law, the local, state or federal can get a court-ordered lien against your property if you do not pay the taxes you owe, and bankruptcy usually isn’t a way around it.

Additionally, there are other types of debts that are generally non-dischargeable in bankruptcy, including child support, alimony, most student loans, court restitution orders and criminal fines.

Check back later this week for Part 2 of “What filing for bankruptcy cannot do.”

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