What Bankruptcy Can and Cannot Do

The Automatic Stay: A Shield Against Collection

One of the biggest advantages of filing for bankruptcy is the automatic stay. Under Section 362 of the U.S. Bankruptcy Code, it requires most creditors to stop collecting the moment your case is filed.^[1] That typically means phone calls, lawsuits, garnishments—even foreclosure—must come to a halt.

For instance, if you’re already losing part of your paycheck to wage garnishment or you’re days away from a foreclosure auction, the automatic stay presses the “pause” button. It’s not always permanent— in Chapter 7 cases, it might last just a few months. But in Chapter 13, you could have up to five years of legal protection while you follow a court-approved repayment strategy.

The Bankruptcy Discharge: Erasing Certain Debts

Discharging debts is another cornerstone of bankruptcy. Especially in Chapter 7, eligible debts such as credit cards, medical bills, and some personal loans can be eliminated within a few months, giving you a fresh financial start.^[2] Note that if you have secured debts—like a home or car— you typically must continue payments or risk losing the asset.

Debts Bankruptcy Typically Can’t Discharge

Although bankruptcy is broad in scope, certain debts remain regardless of which chapter you file:

Student Loans: Erasing educational loans generally requires showing “undue hardship,” which is a difficult threshold.
Recent Taxes: Income tax debts from the last few years often survive bankruptcy, though older ones might be forgiven if specific conditions are met.^[3]
Child Support & Alimony: Domestic support obligations almost never go away through bankruptcy.
Criminal Penalties: Fines or restitution stemming from criminal cases remain enforceable.

Chapter 7 vs. Chapter 13: How They Differ

While both chapters utilize the automatic stay, they approach debt resolution differently:

Chapter 7: Often called “liquidation,” this route can erase many unsecured debts quickly. However, you may need to pass a means test, and some assets might be sold if they’re non-exempt.
Chapter 13: Known as “reorganization,” this chapter is for those with regular income who can pay back part (or all) of their debts over three to five years. You keep your property if you stick to the plan and stay current on secured debts.

Final Thoughts

Bankruptcy can swiftly stop wage garnishment or foreclosure via the automatic stay, and it may discharge unsecured debts altogether. But some obligations, like student loans or child support, generally endure. Choosing Chapter 7 or Chapter 13 hinges on your income, assets, and long-term financial goals.

Consult a knowledgeable bankruptcy attorney to ensure proper filing, protect key assets, and chart a path to a more stable financial future.

Disclaimer: This information is for educational purposes and does not constitute legal advice. For advice specific to your circumstances, seek a licensed bankruptcy attorney.