Weighing The Pros And Cons Of Declaring Bankruptcy

pros cons declaring bankruptcy

Declaring bankruptcy can be one of the hardest decisions you will ever make, but it is important to remember that you don't have to go through it alone. While the thought of declaring bankruptcy may bring about feelings of shame or failure, it is essential to view it as a financial tool that can provide relief and a fresh start for those struggling with overwhelming debt. 

In this article, we will explore the pros and cons of declaring bankruptcy so that you can make an informed decision about whether or not it is the right choice for your situation. Let's get started! 

Pros Of Declaring Bankruptcy 

Debt Relief 

One of the most significant advantages of declaring bankruptcy is that it provides a way to eliminate or restructure your debts. This can help individuals and businesses alike regain control of their finances and start rebuilding their financial future. 

Automatic Stay 

Upon filing for bankruptcy, an automatic stay goes into effect, which halts creditor actions such as collection calls, lawsuits, wage garnishment, and foreclosure proceedings. This gives you some breathing room to figure out your next steps and prevents creditors from taking further action against you. 

Fresh Start 

Bankruptcy can provide a fresh start and a chance to rebuild your credit. While it will impact your credit score, filing for bankruptcy can wipe the slate clean and give you the opportunity to make better financial decisions in the future. 

Legal Protection 

Bankruptcy provides legal protection from creditors and debt collectors. This means that they cannot harass or threaten you for repayment of debts included in the bankruptcy. It also prevents them from taking any further legal action against you. 

A Chance To Learn 

Going through bankruptcy can be a learning experience. It can teach you about budgeting, financial management, and prioritizing expenses. Many individuals who declare bankruptcy come out with a better understanding of how to manage their money and avoid falling into debt again. 

Cons Of Declaring Bankruptcy 

Impact On Credit Score 

The most significant disadvantage of declaring bankruptcy is its impact on your credit score. It can cause a significant drop, making it difficult to obtain loans or credit cards in the future. However, with responsible financial habits, you can rebuild your credit over time. 


Filing for bankruptcy can be expensive, especially when hiring a lawyer. This cost may be prohibitive for some individuals and businesses struggling with debt. However, there are options for low-income individuals and businesses to obtain free or reduced-cost legal assistance. 

Public Record 

Bankruptcy is a matter of public record, meaning that anyone can access information about your bankruptcy filing. While this may not have a direct impact on your finances, it can potentially affect future job opportunities and personal relationships. 

Long-Term Consequences 

Bankruptcy stays on your credit report for several years and may impact future job prospects or renting a home. It is essential to weigh the long-term consequences before making a decision about declaring bankruptcy. 

Loss Of Assets 

Depending on the type of bankruptcy filed, certain assets may need to be liquidated to repay creditors. This can include property, investments, and other valuable possessions. It is vital to consult with a bankruptcy attorney, such as someone at the Law Offices of John A Foscato SC, to understand what assets may be at risk in your specific case. 

Who To Call For Help 

Declaring bankruptcy is a complex process, and seeking professional guidance is highly recommended. A bankruptcy lawyer can help you navigate the legal system, understand your options, and ensure that everything is filed correctly. They will also represent you in court if needed. There are also credit counseling agencies available that can provide financial counseling and education to individuals considering bankruptcy. These agencies can help you develop a budget, learn money management skills, and explore alternatives to bankruptcy. 

How Long Does It Take? 

The time it takes to declare bankruptcy can vary depending on the type of bankruptcy filed and individual circumstances. Chapter 7 bankruptcy typically takes about three to six months, while Chapter 13 bankruptcy can take three to five years. It is best to consult with a bankruptcy attorney for an accurate estimate based on your specific case. 

What To Expect Afterward 

After declaring bankruptcy, you will need to attend a credit counseling course and complete a financial management course. These courses are designed to educate individuals on how to manage their finances better and avoid falling into debt again. You may also be required to attend court hearings or meet with your trustee periodically. 

What Not To Do 

It is crucial not to make any major financial decisions leading up to declaring bankruptcy. This includes taking on new loans, using credit cards for unnecessary purchases, or transferring assets to family members or friends. These actions may be seen as fraudulent and could result in your bankruptcy case being dismissed. 

The decision to declare bankruptcy is a complex one and should be made with careful consideration. However, it is essential to remember that bankruptcy is not the end of your financial journey but rather a tool that can help you get back on track towards a more stable and secure future. So take some time to evaluate your options and seek professional guidance if needed—you may discover that declaring bankruptcy is the right choice for you after all.

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