Bankruptcy, Can Solve Most But Not All Problems

Though bankruptcy may give assistance for debtors from the acts of creditors, do away with some consumer debts or lead to the formation of a repayment plan for those debts that must be resolved, eventually leading to a discharge, there are some things bankruptcy cannot do.

When Creditors have claims against the debtor bankruptcy cannot protect them if  not disclosed with the bankruptcy court when paperwork is filed. As a result, the debtor must be certain to put together a full disclosure of every creditor however time intensive this can be.

Debtor’s assets will not have complete protection under Chapter 7, as it is a solution that leads to the selling of assets to make good on secured debts. However, exceptions can be made together with the help of the court and creditors. Chapter 7 cannot completely shield the debtor from the claims of creditors. Even with discharge, objections could be filed with the court during the deadline period by creditors or the trustee in the case if concerns related to disclosure or some sort of irregularity can be proven.

If you have liens on a property, bankruptcy cannot prevent creditors from repossessing the property on secured debts. Chapter 13 halts foreclosures, however the debtor must put together a repayment plan that enables payments to be made to the existing mortgage and catch ups on payments not made before. One of the stipulations is that the debtor will have to show regular income.

If your business is struggling bankruptcy cannot provide an easy fix. Depending on the size of the business, small businesses being the exception, a chapter 11 path to bankruptcy might take up to 18 months to file and make a repayment plan. An attorney is strongly recommended as well as other professionals could be involved. Payments will likely need to be paid at intervals even during the process of filing and preparing the plan.

In general, bankruptcy cannot reduce or eliminate certain classes of debt. For example, debts of a personal nature related to child support, spousal support or alimony will not be addressed when discharge occurs resulting in the debtor’s liablity for the repayment of these types of debts. Also, under chapter 13 these payments must be part of the repayment plan, and this could result in the plan having to require the extended period of five, as opposed to three years.

Various other debts, including fines owed to municipal or government bodies, or fines of a criminal nature are not dischargeable. Nor can debts related to hurting or killing a person while intoxicated be discharged from filing bankruptcy. Furthermore, debts regarding fraud continue even after other debts are discharged.

Most of the time, tax debts cannot be eliminated. When this has been achieved, it is often a complex, prolonged and costly process typically related to old tax debts.

In most cases student loans will not be discharged under the Bankruptcy Code, although you are able to plead hardship. Still, this is not necessarily granted because it is required that the debtor proves inability to pay now and in the future.

Debtors should take into considerations these potential limitations on debt reduction when filing with the bankruptcy court.

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