Bankruptcy: Advantages and Disadvantages

Declaring bankruptcy can feel like a big step in the wrong direction. People who file for Chapter 7 bankruptcy or Chapter 13 bankruptcy find relief from debts but face new challenges. They must rebuild their credit and hope that banks will eventually lend them money. They may also have to learn to enjoy a scaled-down lifestyle after bankruptcy.

While it can be scary, bankruptcy also provides considerable relief for people drowning in debt. It can stop dreaded phone calls and letters from creditors and collection agencies. Thanks to the automatic stay, creditors can't contact you during bankruptcy proceedings.

More than anything, bankruptcy gives people a fresh start. Here, we will discuss the pros and cons of filing for bankruptcy. If you want more information on this topic, visit Findlaw's Bankruptcy pages or contact an experienced bankruptcy attorney near you.

Disadvantages of the Bankruptcy Process

Some of the disadvantages of filing a Chapter 7 bankruptcy case or a Chapter 13 bankruptcy include:

• Most tax debt is non-dischargeable, which means you generally can't include it in your bankruptcy petition unless it meets certain criteria relating to older tax debt.
• Bankruptcy will lower your credit score for years.
• You must wait years between bankruptcy filings (if you need it again later).
• You can't include student loan debt in your bankruptcy under most circumstances.
• You generally can't use your credit cards and can't use your open lines of credit, except in some cases for credit cards whose debts you have reaffirmed.
• Bankruptcy can feel defeating.
• The bankruptcy courts won't discharge back child support or alimony, regardless of the type of bankruptcy you file.
• It can feel uncomfortable to explain to a judge, trustee, and attorney how you got into your financial situation.
• Your case will be a public record.
• It will be harder to get a mortgage.
• You may have to pay higher interest rates after your bankruptcy filing
• You may still owe your secured debts.
• You may lose non-exempt assets.
• You'll have to practice careful budgeting during the bankruptcy proceedings.

You may feel overwhelmed reading about the disadvantages of filing a Chapter 7 or Chapter 13 bankruptcy. But there are advantages to taking this route. We'll explore some of these below.

Advantages of Filing for Bankruptcy

Most consumers consider bankruptcy a last-resort option. They try to pay their bills but can't keep their heads above water. The good news is that there are several advantages to filing for bankruptcy. If the pros outweigh the cons, bankruptcy may be your best option.

The benefits of a bankruptcy include the following:

• Bankruptcy may make old tax liabilities (older than three years) go away.
• Late debt payments, defaults, and repossessions hurt your credit, so that bankruptcy may be the easier option.
• You can file for a Chapter 13 bankruptcy case in the future if you experience a financial disaster before you are eligible to file another Chapter 7.
• The court won't generally discharge your student loan debt but can discharge it in certain circumstances where there is undue hardship.
• Bankruptcy allows you to have a new and fresh start.
• Harassing phone calls and letters from creditors will stop.
• Some lenders specialize in personal loans for bad-risk consumers.
• State exemptions allow you to keep some valuable assets.
• It can relieve you of your credit card debt.
• It can help prevent foreclosure on your home.
• If you file a Chapter 13, you can agree to a repayment plan that works for you.
• The automatic stay will protect you from aggressive debt collectors.
• Your monthly payments will go directly toward your debt rather than to debt settlement company fees.
• You may be able to keep your car.
• It can wipe out huge medical bills.
• It generally helps you avoid wage garnishments.

A Bankruptcy Attorney Can Help

If you aren't sure if bankruptcy is the right move, you can always speak with an experienced bankruptcy law attorney. They'll review your financial situation and tell you how a Chapter 7 or Chapter 13 bankruptcy will affect your life.

Bankruptcy lawyers are familiar with the bankruptcy code. They understand how the exemptions work and will do their best to help you keep your assets and deal with your debts.

More Bankruptcy Resources

• Pros and Cons of Chapter 7 Bankruptcy
• Pros and Cons of Chapter 13 Bankruptcy
• What Is Bankruptcy?
• Bankruptcy Basics: The Six Different Types of Bankruptcy
• How Bankruptcy Can Help Avoid Foreclosure
• Surviving the Emotional Effects of Bankruptcy