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Bankruptcy: Advantages and Disadvantages

Declaring bankruptcy can feel like a big step in the wrong direction. Filers find relief from debts but also face new challenges to rebuild their credit and secure loans. It is also common to adjust to a scaled-down lifestyle after bankruptcy.

But bankruptcy also provides considerable relief for those buried by unsustainable levels of debt. Dreaded phone calls and letters demanding payment will cease as soon as a bankruptcy is declared.

The following is a list of advantages and disadvantages to consider before declaring bankruptcy. See Bankruptcy Basics for additional articles and resources, or speak with a bankruptcy attorney near you if you need legal assistance.

DISADVANTAGES

ADVANTAGES

Most tax debt is nondischargeable Bankruptcy can make old tax liabilities (older than three years) go away
Bankruptcy will lower your credit until you work to rebuild it Missed debt payments, defaults, repossessions, and lawsuits will hurt your credit - bankruptcy can often be the easier option
You must wait years between bankruptcy filings (if you need it again at a later date) You can file for a Chapter 13 plan if there is another financial disaster before you are eligible for Chapter 7 again
Bankruptcy will not remove student loan debt Nothing will get rid of student loan debt but bankruptcy will prevent your lenders from aggressive collection action
You will lose current credit cards Judges, attorneys, and trustees have seen and heard far worse bankruptcy stories than yours
Bankruptcy can initially feel defeating  Bankruptcy allows you to have a new start
It can feel uncomfortable to explain to a judge, trustee, and attorney how you got into your financial situation Harassing phone calls from creditors, letters, repossessions, canceled credit cards, declined charge authorizations, and lawsuits will stop
Your name will be public in court records once you file Some lenders specialize in lending to "bad risks" customers (this is their term but is an unfair characterization to make of someone who has taken a major step to solve financial difficulties)
You may have to wait or take extra steps to get a mortgage Most state exemptions allow many things you own to be exempt from bankruptcy
You can lose some luxury possessions  

Thinking of filing bankruptcy?
Find a lawyer who can help.

Next Steps

Contact a qualified bankruptcy attorney to find out your options for navigating the best path forward.

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