While bankruptcy can provide alleviation for debtors from the activity of creditors, eliminate some consumer debts or can lead to the development of a repayment plan for those debts that will have to be settled, eventually leading to a discharge, there are some things bankruptcy cannot do.
Bankruptcy will not protect the debtor from creditor's claims if not disclosed with the bankruptcy court when paperwork is filed. Thus, the debtor needs to be certain to make a detailed disclosure of every single one of the creditors however time intensive this might be.
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When filing chapter 7, it offers some protection but not a complete fix all solution, as it is an approach that leads to the selling of assets to make good on secured debts. Nevertheless, exceptions can be made with the help of the court and creditors. Chapter 7 is not able to entirely safeguard the debtor out of creditors' claims. Even with discharge, objections can be filed to the court inside the deadline period by creditors or the trustee in the case if difficulties associated with disclosure or some kind of irregularity can be proven.
If a creditor has a lien on a property and wants to repossess the property because of a secured debt, bankruptcy cannot shield you from this. Chapter 13 stops foreclosures, although the debtor must put together a repayment plan that allows payments to be made to the existing mortgage and catch ups on payments that were not made previously. One of the stipulations is that the debtor will have to show regular income.
If you have a business that is barely getting by bankruptcy cannot provide a quick and easy fix. Depending on the size of the business, small businesses being the exception, a chapter 11 approach to bankruptcy could possibly take up to 18 months to file and make a repayment plan. A lawyer is strongly recommended along with other professionals could possibly be involved. Payments will likely need to be paid at intervals even when the plan is in the process of being filed.
Generally speaking, certain classes of debt bankruptcy cannot reduce or eliminate. For example, debts of a personal nature related to child support, spousal support or alimony are not resolved when discharge occurs and the debtor remains liable for the repayment of these debts. Furthermore, these payments must be part of a repayment plan under chapter 13, and this may lead to the plan having to entail the lengthier period of five, rather than three years.
Other debts, for instance fines owed to municipal or government bodies, or fines of a criminal nature are not dischargeable. Nor can debts associated with hurting or killing someone while intoxicated be discharged as a result of filing bankruptcy. Moreover, debts related to fraud persist even after other debts are discharged.
Most of the time, tax debts cannot be eliminated. Where this has been done, it has been a complex, lengthy 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. Even so, this is not necessarily granted since 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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