Bankruptcy and Debt Relief: Full Guide

Bankruptcy can stop collection activities, eliminate most types of debt, and allow you to reorganize your debts and catch up on missed mortgage or car loan payments. Filing for bankruptcy relief can help you get out of debt. Depending on the chapter you file, you’ll be able to:
• stop foreclosure, repossession, lawsuits, and other collection activities
• eliminate your personal liability for most types of debt, and
• reorganize your debts and catch up on missed payments.
Stop Collection Activities With the Automatic Stay
The automatic stay is a powerful order that goes into effect as soon as you file for bankruptcy. The stay prevents most creditors from initiating or continuing collection activities against you. With a few exceptions, as long as the automatic stay is in place, creditors cannot sue you, foreclose on or repossess your property, garnish your wages, send you collection letters, or even call you to collect their debts. Certain activities, such as the collection of support obligations or criminal actions, can continue to move forward.

Eliminate Most Types of Debt
The reason most people file for bankruptcy is to wipe out (discharge) debt. When you receive a bankruptcy discharge, it extinguishes your liability to pay back many types of obligations, such as credit card debt, medical bills, and personal loans. But not all debts can be discharged in bankruptcy.
Common examples of non-dischargeable debts include:
• recent tax obligations
• alimony and child support
• student loans (unless you can prove that paying them back is an undue hardship on you but this is extremely difficult to do), and
• debts obtained by fraud.
Avoid Foreclosure or Repossession
If you are facing foreclosure or repossession, bankruptcy’s automatic stay can stop the process and provide you time to negotiate with the lender or bring your account current. If you cannot cure your default in a short period, you can catch up on payments and keep your home by filing for Chapter 13 bankruptcy.
Reorganize Your Debts and Catch Up on Missed Payments
Chapter 13 bankruptcy, or reorganization bankruptcy, allows a debtor to catch up on missed mortgage or car loan payments and pay off non-dischargeable debts, such as alimony, child support, and priority tax arrears, through a repayment plan. Depending on your income and amount of debt, Chapter 13 plans typically last three to five years. As long as you continue to make your plan payments, the automatic stay stops your lender from foreclosing on or repossessing your property. But unless you are paying off the entire obligation (usually a car loan) through your plan, you must continue to make your ongoing loan or mortgage payments while catching up on your arrears in your bankruptcy. If you don’t make your regular payments as they come due, the lender can file a motion for relief from the stay and get court permission to resume foreclosure or repossession. Going bankrupt will mean that you won’t be liable for most of your debts and you won’t have to pay them. However, bankruptcy doesn’t cover all debts so it’s important to make sure you know whether any of your debts won’t be covered and put plans in place to deal with them. If you’re facing bankruptcy, you’ll need expert advice.

You can contact your nearest Citizens Advice to get advice about your debt problems and bankruptcy. Most debts that you have when a bankruptcy order is made will be covered by your bankruptcy. If you become liable for things such as court costs or benefit overpayments because of something that happened before the date of your bankruptcy, any debts that arise will still be included in your bankruptcy order. This includes if you’re asked to pay them after you’re discharged from bankruptcy. This means you won’t have to pay them at the end of the bankruptcy period. However, not all types of debt are included in bankruptcy. The people you owe these debts to can still take action to get their money back. This means that before you apply for bankruptcy you should work out how you’ll deal with any debts that aren’t covered.
Debts you’ll still have to pay includes:
• magistrates court fines
• any payments a court has ordered you to make under a confiscation order, for example, for drug trafficking
• maintenance payments and child support payments, including any lump sum orders and costs that have arisen from family proceedings, although you may be able to ask the court to order that you don’t have to pay this debt
• student loans from the Student Loans Company
• secured loans and other secured debts, such as debts secured with a charging order
• debts you owe because of the personal injury or death of another person, although you might be able to ask the court to order that you don’t have to pay this debt
• social fund loans
Fraudulent debts
If you took out any of your debts by fraud, your creditor can’t chase you to pay them while you’re bankrupt, but you won’t be released from them at the end of the bankruptcy period. This means you’ll still be liable for paying debts you obtained by fraud after you’ve been discharged from bankruptcy.
Debts in joint names
If you owe debts jointly with someone else, you can include these in your bankruptcy. However, the creditor would then be able to chase the other person for the whole of the amount that is owed. They can do this whether the person is working or not. You and the other person can each apply for bankruptcy individually, which would cover the joint debt. You will each need to pay a fee and a deposit separately. You can’t jointly apply for bankruptcy.

Guarantor debts
If someone is a guarantor for a loan you’ve taken out it will be included in your bankruptcy but the other person will still have to pay the debt. If you are the guarantor and the other person fails to pay, it will be included in your bankruptcy and the creditor won’t be able to chase you for it.
Business debts
Business debts are covered by bankruptcy. If you have business debts that were taken out in a partnership, you can make a joint application for bankruptcy as long as all the partners agree. If you’re thinking about doing this, you should take specialist advice.
For most people, the main goal of filing for Chapter 7 bankruptcy is to discharge (wipe out) their debts. Although some debts are “non-dischargeable” (they don’t go away in bankruptcy), many people who file for Chapter 7 will be able to discharge most or all of their debts. Credit card debt is one of the most commonly discharged debts, but Chapter 7 will discharge many other types of debt, as well. A discharge releases individual debtors from personal liability for the debt and prevents the creditor owed that debt from taking any collection actions against the debtor. In other words, the debtor is no longer legally required to pay any discharged debts. Although a debtor is not personally liable for discharged debts, a valid lien that has not been avoided (made unenforceable) in the bankruptcy case will remain. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. For instance, if you don’t make arrangements to continue paying your car payment by signing a reaffirmation agreement, the discharge will wipe out your obligation to pay the car loan; however, you won’t get to keep the car. The lender will use its lien rights to repossess the vehicle. In most cases, Chapter 7 bankruptcy filers automatically receive a discharge at the end of their case. In Chapter 7, the court usually grants the discharge 60 days after the 341(a) Meeting of Creditors. Typically, this means you will obtain a discharge about four months after filing your Chapter 7 petition.
Which Debts Are Dischargeable?
You’ll find a listing of debts that qualify for discharge under the heading, “Common Categories of Dischargeable Debt” below. But the debt must meet timing requirements, too. Here’s how it works.
• Pre-filing debt: A pre-petition debt is an obligation incurred before the day that you file for bankruptcy. At the end of your case, the bankruptcy court will discharge all qualifying pre-petition debt, such as credit card balances, personal loans, and medical debt.
• Post-filing debt: The bills that you rack up after submitting your initial bankruptcy paperwork are post-petition debt. In all bankruptcy types, you remain responsible for paying for balances that you incur after the initial filing date, even though your case isn’t over.
In short, among your dischargeable debt, only your debts that arose before the date of filing for Chapter 7 will be discharged. You will still be responsible for any debt you incur after filing your petition but before receiving a discharge.

Common Categories of Dischargeable Debt
Below is a list of the most common dischargeable debts. However, any misconduct or fraud in connection with the below categories might make them non-dischargeable.
• credit card charges (including overdue and late fees)
• collection agency accounts
• medical bills
• personal loans from friends, family, and employers
• utility bills (past due amounts only)
• dishonored checks (unless based on fraud)
• student loans (only in the rare circumstance that you can prove undue hardship)

• repossession deficiency balances
• auto accident claims (except those involving drunk driving)
• business debts
• money owed under lease agreements (includes past due rent)
• civil court judgments (unless based on fraud)
• tax penalties and unpaid taxes past a certain number of years
• attorney fees (except child support and alimony awards)
• revolving charge accounts (except extended payment charges)
• social security overpayments, and
• veterans assistance loans and overpayments.
Bankruptcy offers people who are overwhelmed by debt an opportunity for a fresh start through either liquidation (Chapter 7) or reorganization (Chapter 13). In both cases, the bankruptcy court can discharge certain debts. Once a debt has been discharged, the creditor can no longer take action against the debtor, such as attempting to collect the debt or seize any collateral. Not all debts can be discharged, however, and some are very difficult to get discharged. In a Chapter 7 bankruptcy, a trustee appointed by the bankruptcy court will liquidate (sell off) many of your assets and use the proceeds to pay your creditors some portion of what you owe them. Certain assets are exempt from liquidation. Those typically include part of the equity in your home and automobile, clothing, any tools you need for your work, pensions, and Social Security benefits. Your non-exempt assets will be sold off by the trustee. Those can include property (other than your primary home), a second car or truck, recreational vehicles, boats, collections or other valuable items, and bank and investment accounts. In Chapter 7, your debts are typically discharged about four months after you file your bankruptcy petition, according to the Administrative Office of the U.S. Courts. (Bankruptcy is governed by federal law and overseen by federal bankruptcy courts, although some rules differ from state to state.) In a Chapter 13 bankruptcy, by contrast, you commit to repaying an agreed-upon portion of your debts over a period of three to five years. As long as you meet the terms of the agreement, you are allowed to keep your otherwise non-exempt assets. At the end of the period, your remaining debts are discharged. In general, people with fewer financial resources choose Chapter 7. In fact, to be eligible for Chapter 7, you must submit to a means test, proving that you would be unable to repay your debts. Otherwise, the court may determine that Chapter 13 is your only option. If the debt is the type that doesn’t get wiped out in bankruptcy, you can expect the garnishment to continue after your bankruptcy is over. For instance, in a Chapter 7 bankruptcy, the garnishment will likely remain in place for:
• recent income taxes
• past due child support or alimony
• past due student loans (except in cases of extreme hardship)
• debts caused by accidents you cause while intoxicated, and
• some debts based on fraud or embezzlement.