Declaring bankruptcy is a big deal involving various complex processes. Before you finally make the decision to file for bankruptcy, it is important to evaluate all your options. You should take a close look at your finances and possibly discuss them with financial experts. Armed with the right information, you must then weigh the pros and cons and decide whether filing for bankruptcy is your best option.

The Upside of Bankruptcy

  • Bankruptcy legally protects you from undue harassment from lenders and debt collectors. Once the petition for bankruptcy is filed, the automatic stay goes into effect to prevent lenders and debt collectors from using aggressive or threatening means to collect debt from you. The point of the automatic stay is to give you, the debtor, some reprieve from collection efforts like the repossession of property, wage garnishments, eviction and foreclosures until you can put together a plan for repaying some or all of your creditors.
  • When you file for bankruptcy, you are automatically given the chance to reorganize your finances. This gives you breathing room to come up with better plans as you come face-to-face with reality. It affords the debtor the opportunity to use any assets to equitably repay creditors and to set themselves back up for solvency.  
  • In some limited cases, bankruptcy can clear tax liabilities so long as the taxes were due more than three years earlier and the debtor filed the tax return timely and did not willfully evade payment of the taxes commit fraud.
  • Debtors are allowed to keep some or all of their personal property, depending on the value of the items. Statutes grant debtors exemptions from the collection of all of their personal property. The exemption levels vary from state to state but most of our clients find that they are able to hang on to the personal property, like household furnishings, clothing, automobiles and mementoes, they need in order to obtain a fresh start.
  • All debtors are required to complete a credit counseling course before being allowed to file consumer bankruptcy. The course aims to help the debtor to learn how best to budget and improve your finances.
  • It is possible to actually improve your credit ratings sometime after filing bankruptcy because some of the debtor’s debts are discharged during bankruptcy.

The Downside of Bankruptcy

  • Your bankruptcy discharge will be reflected on your credit report between 7-10 years.
  • Your application for a mortgage or loan may be stalled if you recently filed for bankruptcy and many lending underwriting rules prevent debtors from financing for several years. 
  • Depending on the amount of personal property you own and the type of bankruptcy you file, you may need to surrender some of your possessions to the control of the bankruptcy trustee.
  • Credit cards and other financing arrangements are generally suspended until the underlying agreement can be reaffirmed by the bankruptcy court.
  • The bankruptcy process is often paperwork intensive.
  • If a debtor receives an inheritance or other large amount of money the proceeds will go to the trustee to pay to the creditors before the debtor.  
  • Some prospective employers or landlords may view a recent bankruptcy negatively. They may review your credit report and decide against giving you the job or the apartment.
  • Certain loans like student loans, support orders and liens may be non-dischargeable.

You should definitely consult with a bankruptcy attorney prior to filing your case. Most bankruptcy attorneys do not charge for a consultation and he or she can answer any questions you may have. Do not rely on the internet for answering all of your bankruptcy questions. An experienced bankruptcy lawyer can explain how long your case will take, what requirements you must complete and will generally guide you through the process of filing bankruptcy.


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