Bankruptcy is a legal process that offers relief to people who cannot pay their debt. You may apply for bankruptcy voluntarily or your creditors can petition the court to declare you bankrupt. Whichever, once you are declared bankrupt, a trustee will be appointed to take charge of managing your finances and assets.
While bankruptcy offers relief to those who are burdened by debt, it is important to understand that some debts cannot be discharged with bankruptcy. Meaning, you will be required to pay off these debts even after declaring bankruptcy.
Generally, you can only use bankruptcy to discharge some unsecured debts such as overdue bills, some credit card debt or payday loans. Secured debts, on the other hand, cannot be discharged with bankruptcy. This is because these debts tend to have some form of collateral. An example would be your home mortgage or a secured car loan. In these circumstances, bankruptcy may not prohibit the creditor from possessing the collateral in place of the missed payment. If you fall behind in your mortgage or car loan payment, your creditor has the right to foreclose your home or repossess the asset in question so they can sell it to recover their money.
Some unsecured debts
When it comes to unsecured debts and bankruptcy, certain exceptions apply. Here are unsecured that will remain even after declaring bankruptcy:
- Family debts such as child support and alimony
- Student loans that are less than seven years old
- Fines and penalties that have been imposed by the court of law
- Debts that you have incurred as a result of criminal activity.
Personal bankruptcy may offer you a fresh start when you are overwhelmed by debt. However, before declaring bankruptcy, be sure to find out if the debt you are hoping to get rid of is dischargeable via bankruptcy.