Bankruptcy is often marketed as a fresh financial start. While it's true that it can be highly beneficial in many situations, there are also a number of problems it doesn't solve. Before you declare bankruptcy, you should understand exactly what bankruptcy does and what it doesn't do.
Bankruptcy Doesn't Eliminate All Debt
In bankruptcy, most of your debts will be discharged if you follow the bankruptcy plan. However, there are certain types of debts that cannot be discharged in bankruptcy.
One of the most common types of non-dischargeable debt is student loans. Federal law excludes them from being part of a bankruptcy.
Most court judgments are also non-dischargeable. These include personal injury settlements and child support.
In addition, if a judge feels that you falsified your bankruptcy filing, took on new debt before bankruptcy with no intention of repaying it, or otherwise tried to game the system, they may order that some of your debts that would normally have been discharged will still need to be repaid.
Bankruptcy Does Stop Creditors From Calling
Often, a bankruptcy plan will leave creditors receiving only pennies on the dollar. If your debt wasn't paid in full, they can keep it in their computer and refuse to do business with you unless you pay it in full, but they cannot continue any sort of collection efforts.
Once a debt is discharged in bankruptcy, the creditor can't continue to call, file lawsuits, or send letters. This includes both telling you that you must pay and telling you that you don't have to pay but it would be honorable to do so.
If a creditor continues to contact you about a debt discharged in bankruptcy, you may be entitled to sue them under the Fair Debt Collection Practices Act.
Bankruptcy Doesn't Fix Your Credit Report
Bankruptcy can stop further damage to your credit report in that you won't keep getting late payments reported or be over your credit limits, but in most cases, it's possible that your credit score will go down after you file for bankruptcy.
The good news is that your credit score will heal with time. As long as you take the fresh start as a chance to get into good financial habits, both the impact of the bankruptcy and all the negative marks before it will be removed in a few years.
To learn more about whether and how bankruptcy can help you, visit http://timgeorgelaw.com or a similar website.
