What Bankruptcy Can and Cannot Do — A DC Resident's Guide

Bankruptcy is one of the most powerful tools in federal law for dealing with overwhelming debt -- but it is not a cure-all. Understanding what bankruptcy can and cannot do is essential before you file. Too many DC residents delay filing because they believe myths about the process, and too many others file expecting results that bankruptcy cannot deliver.

This guide breaks down the realities for residents of the District of Columbia who are considering relief under Chapter 7 or Chapter 13 of the Bankruptcy Code.

Debts That Bankruptcy Can Eliminate

The core function of bankruptcy is the discharge -- a permanent court order that eliminates your legal obligation to pay certain debts. Under 11 U.S.C. Section 727 (Chapter 7) or Section 1328 (Chapter 13), the following debts are generally dischargeable:

Credit card debt. Visa, Mastercard, store cards, and other revolving credit balances are the most commonly discharged debts in bankruptcy. Once discharged, the creditor cannot collect, sue, or report the debt as owing.
Medical bills. Hospital charges, physician bills, ambulance fees, and other healthcare-related debt are fully dischargeable. Medical debt is one of the leading causes of bankruptcy filings in DC and nationwide.
Personal loans. Unsecured loans from banks, credit unions, online lenders, and private parties are dischargeable. This includes signature loans, payday loans, and lines of credit.
Past-due utility bills. Outstanding balances owed to Pepco, Washington Gas, DC Water, and other utilities can be eliminated. The utility may require a new deposit after discharge, but the old balance is gone.
Deficiency balances. If a car was repossessed or a home was foreclosed and the sale did not cover the full loan amount, the remaining deficiency balance is dischargeable.
Lease obligations. If you broke an apartment lease or vehicle lease, the resulting claim for damages or remaining rent is generally dischargeable.
Civil judgments for debt. If a creditor sued you in DC Superior Court and obtained a money judgment, that judgment debt is dischargeable in most cases -- provided the underlying debt was dischargeable.

Debts That Bankruptcy Generally Cannot Eliminate

Congress has carved out specific categories of debt from the discharge. These are listed primarily in 11 U.S.C. Section 523(a):

Child support and alimony. Domestic support obligations under Section 523(a)(5) are nondischargeable under any chapter. This includes court-ordered child support, spousal support, and arrearages.
Most student loans. Under Section 523(a)(8), student loans -- both federal and private -- are nondischargeable unless you can demonstrate undue hardship. The standard in the U.S. District Court for the District of Columbia follows the Brunner test, which requires showing that you cannot maintain a minimal standard of living, that your circumstances are likely to persist, and that you have made good-faith efforts to repay.
Recent income taxes. Tax debts follow complex rules. Generally, income taxes are nondischargeable if the return was due less than three years before filing, if the return was filed late and less than two years before filing, or if the tax was assessed less than 240 days before filing. See Sections 523(a)(1) and 507(a)(8).
Debts from fraud. If a creditor can prove that you incurred a debt through false pretenses, false representation, or actual fraud, that debt is nondischargeable under Section 523(a)(2). This includes writing bad checks with intent to defraud and using credit cards with no intention of repaying.
Criminal fines and restitution. Court-ordered fines, penalties, and restitution arising from criminal proceedings are nondischargeable under Section 523(a)(7).
Debts from willful and malicious injury. If you intentionally injured someone or their property, the resulting debt is nondischargeable under Section 523(a)(6).
Government-imposed fines and penalties. This includes DC parking tickets, traffic fines, and other governmental penalties.

The Automatic Stay -- Immediate Protection

One of the most valuable features of bankruptcy is the automatic stay under 11 U.S.C. Section 362. The moment your petition is filed with the U.S. Bankruptcy Court for the District of Columbia, the automatic stay takes effect. It:

Stops wage garnishment. If your employer is garnishing your paycheck under a DC Superior Court order, the garnishment must stop immediately.
Halts lawsuits. Pending collection lawsuits in DC Superior Court or federal court are stayed. Creditors cannot file new actions.
Prevents bank account levies. If a creditor has obtained a judgment and is attempting to freeze or levy your bank account, the stay prohibits further collection.
Stops creditor contact. Phone calls, letters, emails, and other collection communications must cease.
Delays foreclosure and repossession. The stay temporarily halts foreclosure proceedings on your DC home and prevents repossession of your vehicle.

The automatic stay is not permanent. Secured creditors can file a motion for relief from the stay under Section 362(d), and the stay may not apply at all if you have had a prior case dismissed within the past year (Section 362(c)(3)) or two prior cases (Section 362(c)(4)).

What Bankruptcy Cannot Do

Beyond the nondischargeable debts listed above, bankruptcy has other limitations:

It cannot eliminate liens on secured property without paying for it. If you owe money on a car loan or mortgage, the lien survives bankruptcy even if the underlying debt is discharged. You must either surrender the property, reaffirm the debt, or redeem the property under Section 722.
It cannot stop a criminal prosecution. The automatic stay under Section 362(b)(1) does not apply to criminal proceedings, including criminal contempt actions.
It cannot undo a voluntary property transfer that triggers a fraudulent conveyance claim. If you transferred property before filing to avoid creditors, the trustee can recover it under 11 U.S.C. Section 548.
It cannot protect a co-signer in Chapter 7. If someone co-signed a debt for you, your discharge does not protect the co-signer. The creditor can still pursue the co-signer for the full amount. Chapter 13 offers a co-debtor stay under Section 1301, but only while the plan is in effect.

DC-Specific Considerations

DC filers can choose between DC exemptions under DC Code Section 15-501 and federal exemptions under 11 U.S.C. Section 522(d). This choice is critical -- it determines what property you keep. DC is one of the few jurisdictions that permits this election.

The DC homestead exemption protects equity in your principal residence. The federal exemptions offer a wildcard that can be applied to any property. The right choice depends on your specific assets.

Bankruptcy cases for DC residents are filed in the U.S. Bankruptcy Court for the District of Columbia, located at the E. Barrett Prettyman U.S. Courthouse. The Chapter 7 trustee panel and Chapter 13 standing trustee are specific to this district, and local rules supplement the Federal Rules of Bankruptcy Procedure.

The Fresh Start

Bankruptcy exists because Congress recognized that honest debtors deserve a fresh start. The Supreme Court affirmed this principle in Local Loan Co. v. Hunt, 292 U.S. 234 (1934), describing the purpose of the discharge as giving "the honest but unfortunate debtor ... a new opportunity in life."

If you are a DC resident struggling with debt, understanding what bankruptcy can and cannot do is the first step toward determining whether it is the right tool for your situation.