Filing for bankruptcy can come with a bad reputation, but sometimes it’s the best option available for your financial situation. Yes it’s true that it can affect your credit for the next few years but it can also help you get the fresh start you desperately need. Knowing the advantages and disadvantages before you make the decision to file can help you to better decide what will benefit you more long term. Here are some important things you should consider before you make your move.


What bankruptcy will and won’t do

Knowing how bankruptcy will and will not help is key. Filing for bankruptcy does not get rid of all debt. It can take care of your unsecured debt, including credit cards or medical bills, but there are certain things it can’t help you with. It does not clear student loans, child support or alimony, debts from the government such as taxes, fines or penalties, or reconsolidation loans. 

Certain types of debt can be dischargeable with bankruptcy, meaning you will no longer be responsible to repay them. Some debts that can fall into this category include credit card debt, personal loans medical bills, and utility bills.


Unexpected advantages to bankruptcy

A benefit to filing bankruptcy is that once you file, an automatic stay is issued against all creditors seeking money from you. This basically suspends debt collection until your case is complete meaning that they cannot contact you, garnish your wages, foreclose your home, reposes property, or file any lawsuits against you on debts.

How bankruptcy effects your credit score is up for debate. It is widely known that filing for bankruptcy will lower your credit score, which is true; but did you know that it also has the potential to help your score increase as well? Once your dischargeable debts are cancelled you are essentially given a clean slate and are then able to then start improving your credit score. Just by getting those delinquent accounts removed from your record will help your score improve dramatically from your original starting point, being before you filed bankruptcy.


Know the consequences

One of the big consequences of filing for bankruptcy is that it can stay on your credit report for up to ten years. Chapter 7 bankruptcy, the most common type, will stay on your credit report for 10 years. Chapter 13 bankruptcy will stay on for 7 years. This will leave your credit score with a pretty big hit.

After you have filed for bankruptcy, your credit card company will be notified and many of them will cancel your card. You will most likely not get approved for a new card but you can apply for an unsecured credit card. It is similar to the credit card you are used to but it comes with high interest rates and annual fees. You will more than likely not be able to qualify for a mortgage loan for a few years either. It may also be difficult to rent a house because often times landlords run your credit before agreeing to rent to you. Bankruptcy is publicly recorded so it may also have a negative effect when it comes to finding employment because it can be seen as a red flag to some employers.

In some cases, you can be denied your local, state, or federal tax refund. If you owe money to the government, which bankruptcy does not encompass, they can take away your refund at tax season. 


Bankruptcy is something that should not be taken lightly. Although there are some benefits to it, the consequences last for years. When the stress of being in debilitating debt outweighs the disadvantages of filing for bankruptcy, it would be wise to consider filing. If you file at the wrong time it can worsen your financial statues even more. A risk you take by filing too early is potentially having to file for a type of bankruptcy that will not give you the optimal results for your situation. Consider hiring an attorney when it comes to something as drastic as bankruptcy because they will be able to help guide you throughout the process; making smart decisions that will improve your financial future.  If filing for bankruptcy is the only option you have left, once it’s over with, try focusing on rebuilding your credit and improving your money management. There is always good to be found in a negative situation.

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