What California Bankruptcy Cannot Do

If you’re considering filing for bankruptcy, you’re probably at least somewhat familiar with what bankruptcy can do for you: automatic stay protection to stop creditor harassment and discharge of most of your debts for a clean financial start. Still, it’s important that you understand what bankruptcy cannot do and make sure you have realistic expectations before you file.

Bankruptcy Can’t Eliminate a Secured Creditor’s Rights
There are two primary types of debts: unsecured debt like credit card debt that is not secured by collateral and secured debt like a car loan or mortgage that is secured with property. While bankruptcy can discharge your obligation to pay secured debts, it does not eliminate the creditor’s right to the collateral.

In general, you cannot both keep the property that serves as collateral AND stop paying the debt. You have three primary options:

• Surrender the property and have the debt discharged
• Reaffirm the debt with a new agreement to keep the property
• Come up with the money to pay off the debt and keep the property. This is extremely challenging in bankruptcy, however, unless your loan has a low balance remaining.

Bankruptcy Can’t Discharge All Debts
There are many types of debts that cannot be discharged by bankruptcy in the vast majority of cases. This includes:

• Child support
• Alimony
• Some types of divorce debt
• Criminal fines
• Traffic fines
• Court restitution orders
• Most student loans
• Some taxes

There may be cases in which you can discharge these debts. For example, alimony and child support debt can be discharged if you do not have the ability to pay the debt from your property or income that is not reasonably necessary to expend for these debts or discharging the debt would provide a benefit to you that outweighs the detriment to the former spouse or child.

Bankruptcy Can’t Protect Cosigners
If you file for Chapter 7 bankruptcy, there will be no protection for your cosigners, who will still be liable for the debt you discharged. Your creditors can and will still pursue the cosigners for the debt that is owed. Cosigners may be granted the automatic stay protection under Chapter 13 bankruptcy, but a creditor can petition the court to have this stay lifted from creditors in a few situations.

If you’re considering filing for bankruptcy, a Los Angeles bankruptcy attorney can help you explore your options, decide which type of bankruptcy is best for your situation, and take appropriate steps to protect your assets and your future.