Chapter 13 bankruptcy may seem like your route out of financial insolvency. However, a bankruptcy judge cannot discharge every kind of debt. Even in bankruptcy, you are still obligated to pay some outstanding costs like overdue child support or alimony, civil judgments, and debts from many government backed educational loans.
Still, this does not mean bankruptcy cannot assist you. While bankruptcy may not erase these mandatory debts, it can perform a number of actions that may help you to catch up with the debts that you must pay off.
Discharge other debts
Nerdwallet explains that even though Chapter 13 cannot erase your mandatory debts, it may discharge other debts that are eligible. Expenses like credit card debt, personal loans or your medical bills may have contributed to your bankruptcy. Discharging some or all of this debt may free up money that you can put towards outstanding obligations like back child support or alimony.
Spread out debt repayments
As part of Chapter 13 bankruptcy, you will come up with a plan to pay off some of your debts. You may use your plan to prioritize certain debts over others, provided your creditors agree. Your lower priority creditors might accept smaller payments over a period of years, which could allow you to pay larger amounts on more urgent debts.
Stop collection efforts
Filing for Chapter 13 bankruptcy also puts a halt to efforts by your creditors to collect on your debts. This could relieve some stress since your creditors are not hounding you, but it also prevents your creditors from garnishing your wages. This may leave some of your money available to pay your mandatory debts.
Keep in mind that bankruptcy is unlikely to stop collection efforts related to your mandatory debts. Still, halting some collection actions may free up enough money to start paying off some of your mandatory debts, which may in turn stop actions to collect on them. These actions could provide emotional relief and help you think clearly as you navigate through bankruptcy.