What is bankruptcy and what does it do?

Bankruptcy is a legal process that can stop people or companies from trying to collect debts you owe them.


There are several ways a bankruptcy can help you:

  1. It can wipe out most or all of your debts to give you a fresh financial start. This is called a “discharge'' of debts.

  2. It can also stop foreclosure of your house and allow you to catch up on missed payments.

  3. It can stop repossession, which is when creditors take your property to pay for your debts, or force a creditor to return repossessed property.

  4. It can stop creditors from taking money out of your wages or bank account.

  5. It can restore or keep your utilities from being turned off.

  6. It can also help get rid of your reinstatement fees for your driver’s license, if you have lost your driver's license. 


If you find yourself feeling overwhelmed by debt, you can see how filing bankruptcy may be a good option for you to get a fresh start. It can help get rid of any debts you might have and give you a chance to restart. However, there are some things that people sometimes get confused about with bankruptcy, and it’s important to know what a bankruptcy cannot do.


Here are some things a bankruptcy usually can’t help with:

  1. A bankruptcy cannot get rid of certain types of debt, like child and spousal support, most student loans, some taxes, and court fines and some restitution orders.

  2. It cannot protect cosigners on your debts. So if you have a cosigner, they may still have to repay all or part of the loan, even if you file for bankruptcy.

  3. A bankruptcy does not get rid of what is called “secured debt.” This is when there is a mortgage or lien against property that was purchased with a loan, usually homes or vehicles. If you have this type of secured” debt, you would have to decide whether to continue to pay on the debt or return the property to the creditor. You usually cannot keep this type of property after bankruptcy unless you pay the debt that is connected to it. 

  4. You also won’t be able to get rid of any new debts that you create after filing for bankruptcy.