Bankruptcy Basics: What It Can and Can’t Do

This article is part of a comprehensive guide to bankruptcy in Oregon. Go here to read the guide and see related articles.

If your debt feels unmanageable, bankruptcy may be one way to get relief. It's a legal process that can help you regain control of your finances—but it also has serious downsides and isn't the right choice for everyone.

Read this article to learn what bankruptcy can and can't do. Then, you can go to this guide to explore different types of bankruptcy, how they affect you, and what the filing process looks like. 

What bankruptcy can do 

It can erase some types of debt. Bankruptcy can get rid of many types of debt, including: 

• Credit card balances
• Medical bills
• Personal loans
• Some past-due utility bills

It can stop most debt collection. Filing for bankruptcy puts a pause on collections. This means: 

• Creditors must stop calling or sending collection letters and can't sue you. 
• If a debt collector is taking money from your paycheck or bank account, they must stop immediately. 
• In some cases, it may temporarily pause evictions, foreclosures, or repossessions. 

It can set up a plan to catch up on certain debts. 

• If you're behind on important bills, some types of bankruptcy may give you extra time to make payments and stop creditors from taking further action against you.

What bankruptcy cannot do

• It can't eliminate all types of debt. Some debts don't go away in bankruptcy, including: 
  • Child support and alimony
  • Criminal fines and restitution 
  • Most tax debts
  • Most student loans—except in cases where paying them would cause serious and lasting hardship
• It can't guarantee that you can keep all property. 
  • While bankruptcy laws protect essential items (called exempt property), some belongings may not be protected (non-exempt property).
  • Whether you can keep them depends on the type of bankruptcy you file and whether you can keep up with the required payments.  
• It can't get rid of secured debts without giving up the property. 
  • Some debts are tied to specific property—like a loan for a house or car. These are called secured debts.
  • If you stop making payments, the lender can still take the property, even if the debt is erased in bankruptcy.

Will bankruptcy help my situation?

Bankruptcy can provide relief from debt, but it isn't the right solution for everyone. 

Filing for bankruptcy may help if: 

• You can't afford to pay your debts and don't see a way to quickly catch up. 
• You are facing lawsuits, wage garnishments, or utility shutoffs due to unpaid bills. 
• Your debts are mainly unsecured (not tied to property) like credit cards, medical bills, and others. 
• Other debt relief options (like credit counseling or debt consolidation) haven't worked.

However, bankruptcy may not help if: 

• Your financial problems go beyond debt—like losing your job or having bills that keep adding up. 
• Most of your debt can't be erased by a bankruptcy—such as child support, taxes, or most student loans. 
• You want to keep a home or car but can't afford the loan payments. 

There are different types of bankruptcy. Some erase debt quickly. Others help you pay off debt while keeping your property. Learn more about the different types here.

Choosing the right time to file 

The timing of bankruptcy is important. It only erases debts you had before you filed, not any new debts you take on afterward.  

Things to think about before filing: 

• If you take on new debts after filing, that debt won't be erased in your bankruptcy. 
• You can only discharge your debts with a Chapter 7 bankruptcy once every 8 years. If you file too soon, it might not help you. 
• Bankruptcy stays on your credit report for years, so it can affect your finances for a long time.

If you're unsure whether now is the right time, you may want to talk to an attorney or credit counselor.

Summary

• Bankruptcy can help with debt, but it's not right for everyone.
• It can help you get a fresh start and may stop debt collection, erase certain debts, and protect your property.
• But bankruptcy doesn't wipe out all debts, and it can affect your credit for years.
• Before you decide, learn about your options and consider talking to a legal or financial professional.

Thinking about bankruptcy? Go here to read our guide to the two main types of bankruptcy, how they work, and what steps to take. 

Other Frequently Asked Questions