Bankruptcy – What It Actually Can/Cannot Do

Posted on January 13, 2016

Bankruptcy is not the best way to deal with various credit problems; however, some people resort to this last option being frequently unaware of the fact that not all debt can be eliminated by it.

Chapter 7 bankruptcy as well as Chapter 13 is able to eliminate credit card debt; however, they do not rid the person of the child support or tax or student loan responsibility as well as a list of other things. Besides, there are different situations when Chapter 13 can help and Chapter 7 cannot. Here is more information on the account of what these two bankruptcy options can and cannot do.


Most people who choose bankruptcy as a solution to their financial problems do so because it is one of the most effective ways to deal with debt.

First, it is able to eliminate credit card debt and some other unsecured debts (but not payday loan debts). However, it is most effective with credit card debts. The exception is special secured credit card that is not covered by bankruptcy.

The same refers to unsecured debts; however, the terms are different with regards whether a person files for Chapter 13 or 7 – the former requires repayment of some part of the unsecured debt.

One more thing that bankruptcy can do is to stop all the creditors’ collection activities with regards to a person’s loan. It is especially effective in more serious cases when a case concerns a mortgage or a vehicle. Bankruptcy is also able to help with some of the kinds of liens.


Unfortunately, bankruptcy won’t solve all your debt problems; otherwise everyone would use it.

Bankruptcy won’t help to prevent property repossessing in case of a secured loan. The property is likely to change hands even in case debt is eliminated by bankruptcy. There are cases when term can be more lenient; however, with lien bankruptcy is effective only rarely.

Alimony, child support and similar obligations are not subject to bankruptcy procedure. These debts stay to be owed in full and in full they are supposed to be repaid. Chapter 13 bankruptcy requires a repayment plan for these debts as well.

The same refers to student loans – they also stay the same bankruptcy or no bankruptcy. In very rare cases bankruptcy can cover a student loan; however, it only happens in special circumstances when a person is able to prove that they won’t be able to repay neither at the present moment nor in the future.

Taxes are not covered by bankruptcy and nor are other non-dischargeable debts such as debts of personal injury caused by a person’s intoxicated driving, all penalties and fines imposed by the law and also all the debts that were not listed in bankruptcy papers.

With Chapter 7 the aforementioned debts stay where they were after bankruptcy; with Chapter 13 are supposed to be repaid in accordance with the repayment plan offered. There are also cases when creditors insist on some debts to stay and these are usually the ones that resulted in cases of fraud upon credit application.



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