If you find yourself in a bad financial spot and realize there is no way out, you may want to consider the benefits of filing for Chapter 7 or Chapter 13 bankruptcy. With this, you'll find it possible to eliminate or reorganize most of your debt, thus putting you in a better financial position.
However, there's something to remember before you get too deep into the process — bankruptcy is not a surefire way to relieve all of your debt. Many people believe this to be true, and end up disappointed as the process proceeds. If you let one or more myths guide your thinking, it's possible that you won't get as much value out of the bankruptcy process as you thought.
While filing for Chapter 7 and Chapter 13 bankruptcy can provide relief from many forms of debt, there are a few exceptions to keep in mind.
What bankruptcy can and cannot take care of
Bankruptcy takes care of a variety of debts, including:
- Credit card debt
- Certain unsecured debt like unpaid medical bills
- Debt from personal loans
On the flip side, there are debts that won't disappear in a bankruptcy, like student loans. No matter what you do, you're probably going to be stuck with these loans, even after you've completed the bankruptcy process.
The same holds true for child support and alimony. If a court has ordered you to make one or both of these payments, don't expect bankruptcy to do anything to help. You are still required to pay the money before, during and after your filing is complete.
Dispelling bankruptcy myths
If you go into bankruptcy with the idea that it will relieve all of your debt, you may find yourself searching for other debt-relief solutions. You need to go into the bankruptcy process with a clear idea of what it can do for your finances.
Fortunately, there are things you can do to protect yourself when filing for bankruptcy. The following is a good starting point:
- Create a comprehensive list of all of your debts.
- Categorize each debt by whether it can be discharged through bankruptcy.
- Focus on staying on top of payments to debts that aren't covered by your bankruptcy claim.
By getting rid of some debts through bankruptcy, you will hopefully have more money to continue paying back accounts that bankruptcy doesn't cover.
So, remember this — bankruptcy will relieve most of your accrued debts, but not always all of them.