Bankruptcy is a legal proceeding available to those with serious debt problems looking for a fresh financial start. But, the process cannot completely eliminate all debts. Much depends on whether the debt is secured, meaning that a person pledged to turn over property in the event that they could not pay the debt.
Bankruptcy can do three main things:
- Eliminate unsecured debt;
- Stop collection activities; and
- Discharge particular types of liens.
The discharging of unsecured debt, for instance most credit card debt, can be one of the biggest reasons to enter bankruptcy, and represents one of the main reasons for the procedure’s existence. Although, filers should remember that bankruptcy will not necessarily completely eliminate all unsecured debt. For example, Chapter 13 repayment plans will likely involve paying back a portion of those debts. Bankruptcy also prevents bill collectors or creditors from harassing you. It may also delay or prevent the repossession of property. Bankruptcy also offers a limited ability to deal with certain secured debts, by offering an opportunity to eliminate some types of liens that would otherwise allow creditors to repossess property.
What Arlington Heights Bankruptcy Cannot Do
Unfortunately, bankruptcy is not a financial silver bullet. The law places limits on the types of obligation that people may discharge through bankruptcy.
- Bankruptcy eliminates debts, but almost never eliminates a creditor’s right to take property that a person used as collateral for a debt.
- The law also prevents bankruptcy from discharging child or spousal support debts.
- Student loan debts will also survive bankruptcy in almost all circumstances. Discharging them requires a person to demonstrate that the debt causes “undue hardship,” which means that they cannot pay the debt now, and likely will not be able to pay it in the future either.
- The government also makes it very difficult to discharge tax debts. However, the law makes limited exceptions for certain, old, unpaid, income taxes.
- The law also exempts other debts from discharge, including debt incurred from injuring someone while driving drunk and debt incurred through illegal activities, e.g. criminal fines.
Bankruptcy affords creditors the opportunity to go before a judge in an effort to get their debt exempted from the bankruptcy proceeding. These arguments succeed most often in situations involving dishonesty, like falsifying a credit application.
Unique Chapter 13 Bankruptcy Benefits in Arlington Heights
Chapter 13 bankruptcies also have the unique ability to solve several other problems. First, these types of bankruptcy can halt a foreclosure. Instead, they set up a repayment plan that the lender must accept, which will get the mortgage back on track, provided the filer has enough income to fund such a plan. Chapter 13 bankruptcies also let people keep property that Chapter 7 would require them to sell in order to pay their debts. Chapter 13 also provides for a “cram down” option for certain secured debts. This option becomes available for some debts that are larger than the value of the property securing them. In these cases, a Chapter 13 bankruptcy may provide people the option with paying off the replacement value of the property, rather than the entire debt.
Do you want to learn more about bankruptcy? If so, please contact us at Newland & Newland today. Our bankruptcy lawyers help residents in Lake County, McHenry County, Cook County, DuPage County, Crystal Lake, Arlington Heights, Barrington, Palatine, Rolling Meadows and throughout Northern Illinois.