by:  Baran Bulkat, Attorney

In general, filing for bankruptcy relief can help you:

• 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

When you file for bankruptcy, most creditors are prohibited from initiating or continuing collection activities against you by the bankruptcy’s automatic stay. With a few exceptions, this means that while you are protected by the automatic stay, 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.

Eliminate Most Types of Debt

The reason most people file for bankruptcy is to eliminate their debts. When you receive a bankruptcy discharge, it wipes out your liability for and obligation to pay back most types of debt. But be aware that not all debts can be discharged in bankruptcy.

Common examples of  nondischargeable  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 of time, Chapter 13 bankruptcy can allow you to catch up on your missed payments over the next three to five years through a repayment plan (discussed below).

Reorganize Your Debts and Catch Up on Missed Payments

Chapter 13 bankruptcy is called a reorganization bankruptcy because it allows debtors to catch up on missed mortgage or car loan payments and pay off nondischargeable debts (such as alimony, child support, and priority tax arrears) through an affordable repayment plan. Depending on your income and amount of debt, Chapter 13 plans typically last three to five years.

This means that you can catch up on your arrears and pay off your debts by making small monthly payments over a long period of time. 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  to get court permission to resume foreclosure or repossession.