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Consider this before filing for bankruptcy

Filing for bankruptcy is not for the faint-hearted. It might be one the last respite to spiraling into a cycle of debt and give you a breathing space and a chance to regroup and refocus on your financial situation.But even though it might save you from losing the things that you value most for you and your family, there are some drawbacks to filing for bankruptcy. Let us first look at what happens when you actually file for it.

You might have to undergo a bankruptcy counseling session to obtain a certificate before bankruptcy can be discharged. You get your creditors off your back as the law dictates that they can’t hold you against past due credits. You also avoid repossession and foreclosure proceedings. You are also issued an Order for Relief by the court, including what is known as an “automatic stay” that basically stops creditor from all collection actions. However, foreclosure actions may be reinstated if lenders file a “motion of relief”.

Your credit cards will be without balance for quite a long time as it has to be declared in the bankruptcy or you could face allegations of committing fraud. If you are a student, you will still have to pay student loan if you have one as they are not included in bankruptcy. However, student’s loan can be discharged if you can prove that you are physically unable to work.


  • As soon as you file for bankruptcy, automatic stay is initiated and all creditors, lenders and debt collectors are barred from making any attempt at collection. You can also be compensated if any of them try to make demands or legal threats.
  • All unpaid bills are waived but you might file for Chapter 13 that allows you to restructure your debts and secure them in monthly payments. This also gives you the space to re-organize your finances and recover from certain debts.
  • Filing for Chapter 7 grants you the bankruptcy exemptions under federal and state laws that exempt your assets from being liquidated. This ensures that you will be able to keep your assets, such as houses, jewelry, cars and a range of other personal possessions that you require to maintain a baseline quality of life.
  • Under bankruptcy laws, your employer won’t be able to fire you from your job. This means you can still work, earn money and plan on how to achieve a better financial position.
  • However, the real pro of filing for bankruptcy is that is helps you get out of your debts. It lets you relax and plan your life better.


  • The first and most important downside to filing for bankruptcy is that it stains you credit score, sometime for over a decade. This means that you won’t be able to secure certain types of loans and even if you get the loan, the interest rates on it will be much higher. It will force you to forego a certain lifestyle. However, the damage caused by not filing always outweighs filing for bankruptcy. Also, the impact of a bad credit report always decreases with time.
  • Debts like student loans, alimony, back child support, back taxes and fines will not be eliminated. These debts will have to be cleared and that is a challenging task during bankruptcy.
  • Even though some of your possessions might be exempt from liquidation, not all properties are included in the mix. As a result, depending on your financial condition, you still might have to give up some of your belongings like stocks and bonds.
  • Filing for bankruptcy is a long process and it is not cheap as it includes a lot of different fees right from filing fees to your attorney’s bill.
  • Lastly, filing for bankruptcy might have a psychological impact on you as it is seen as accepting defeat.