What is Bankruptcy?


 What is Bankruptcy?

Bankruptcy is a legal proceeding where consumers can eliminate or repay their debts under the protection of the bankruptcy laws. Bankruptcy is a right provided by federal law and bankruptcy cases are handled in federal court.  Bankruptcy laws help individuals who can no longer pay their bills get a “fresh start.”

Bankruptcy can discharge many of your debts – meaning you will not have to pay them.  However, loans such as mortgages, car loans, and other liens may still need to be paid if you want to keep those items.

Before filing for bankruptcy, you must receive credit counseling from an approved credit counseling agency.  Credit counseling is done over the internet or the telephone.

After your case is filed, you must attend a meeting with the bankruptcy trustee.

Before you can get a discharge, you must also complete a financial management course with an approved credit counseling agency.  This course can also be completed over the internet or telephone.

What Can Bankruptcy Do?

Bankruptcy can:

  • Eliminate (or discharge) the legal obligation to pay most or all of your debts.
  • Stop foreclosure on your home and allow you the opportunity to catch up on lapsed mortgage payments.
  • Prevent repossession of a car or other vehicle, or even force the lien holder to return the vehicle after it has been repossessed.
  • Stop wage garnishments, creditor harassment, and other creditor actions to collect a debt.
  • Restore utility service or prevent a utility shut off.

What Bankruptcy Cannot Do:

Although bankruptcy can be a great help to individuals, it cannot solve every financial problem.  A bankruptcy cannot usually help you in the following situations:

  • A bankruptcy cannot eliminate certain secured debts.  If a creditor has taken a security interest or has a lien on property as collateral for a loan (such as car loans or mortgages), you basically have to continue to pay the debt if you want to keep the property. You can however eliminate your obligation to pay additional money on the secured debt by surrendering the property back to the creditor.
  • Bankruptcy law singles out certain debts and declares them to be non-dischargeable (meaning you can’t get rid of them in a bankruptcy). Examples of nondischargeable debt include child support, spousal support (alimony), most student loans, court restitution orders, criminal fines, and most taxes.
  • Debts that arise after the bankruptcy has been filed cannot be discharged in that bankruptcy.  A bankruptcy filing can only cover those debts that arose before the filing of the bankruptcy petition.
  • Protect a co-signer on a debt.  A chapter 7 will not discharge or protect a co-signer.  When your relative or friend co-signs a loan for you, and you have it discharged in a bankruptcy, your co-signer may have to prepay some or all of the loan.  However, co-signers can be protected in a chapter 13 bankruptcy.

The Bottom Line

Bankruptcy is right under law that all individuals can access and is a powerful financial tool that can give you the fresh start you deserve.

To learn how bankruptcy might help you out, please contact my office at (814) 240-1013 or email me at richarda@johnstownbankruptcy.com.  The first office consultation is free and payment plans are accepted.


If you would like to know how bankruptcy can help you get a financial fresh start, please fill out the following contact form:

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