Seeking protection from creditors in a California courtroom may make it possible to eliminate or reduce your debts. However, filing for bankruptcy won’t allow you to get rid of all of your outstanding balances. For instance, you will likely still be responsible for making student loan, back tax or child support payments.
Priority payments generally don’t away
As a general rule, the only way to eliminate a priority debt is to pay the balance in full. Examples of such a debt include federal tax balances and past-due child support and alimony payments. Paying these balances is considered to be vital to the public interest, so you won’t be able to discharge them regardless of what type of bankruptcy you seek. However, it may be possible to use bankruptcy to give yourself leverage to negotiate a payment plan or seek other forms of relief.
Secured debts may still be enforced
While your bankruptcy case is pending, creditors may be barred from repossessing a car or foreclosing on your home. However, once your case ends, a creditor may be allowed to pursue such actions to satisfy their interest in the property used to secure an auto loan or home loan. It’s also important to note that an automatic stay against creditor collection activities may be dropped if you fail to stay current on a loan while your case is ongoing.
Even if a debt cannot be eliminated in bankruptcy, it may be in your best interest to file anyway because you may be able to convert negative equity into an unsecured debt, which may reduce the amount that you actually have to pay. Furthermore, you may have an opportunity to surrender assets that have negative equity without penalty.