Bankruptcy can wipe the financial slate clean and allow people to get a fresh start. For those who are drowning in debt, whether it be from credit card debt, medical debt or any other debt that is threatening both the stability of their financial situation and their life, bankruptcy can be a very positive thing.

However, it does have negative consequences as well as positive solutions for those who declare, and it’s important to be aware of the negative ways bankruptcy can affect your life.

What are the Positive Consequences of Bankruptcy?

There are certainly good things that can come out of declaring bankruptcy. If you file a petition for bankruptcy in Bankruptcy Court, and the judge grants your petition, you will likely find yourself with a lot more breathing room, financially. Debtors are stayed from pursuing you once you file for bankruptcy (called an ”automatic stay”).

Once the bankruptcy is final, many debts that have been haunting you will be wiped out. As mentioned above, debt from credit cards is eliminated is many cases. Crippling medical debt can be erased. Certain loans, and debt from foreclosures can also be erased.

Whatever debts are included in your bankruptcy once it is final, you no longer have to pay back. Many types of debt can be eliminated, allowing you to start over and plan for your budget, free of unmanageable debts.

Over time, if you remain free of debt and pay your bills on time, your credit score will likely improve (although it will take a hit, initially). And, of course, the best thing of all is that you can relax in the absence of the debt that was so difficult to pay off.

What are the Negative Consequences of Bankruptcy?

While there are positives and benefits to declaring bankruptcy, there are also some important realities that you should think of before you start the process to file:

  • Although you can improve your credit score over time after your bankruptcy, at first, declaring bankruptcy will damage your credit, both your credit score and your credit report. It may be that your credit is already poor when you file, due to your financial distress. The hit your credit takes will depend on the amount of debt you had, and how many different creditors you owed. As a result of poor credit, you will have difficulty getting lines of credit and various types of loans in the future. This included home loans, so you will not be able to purchase a home in your own name while the bankruptcy remains on your record.
  • Debts that are incurred during the process of bankruptcy (which can take several months) and are not listed in the original petition will not be included in your bankruptcy, and will not be discharged. Debts incurred in the six months prior to filing for bankruptcy may also be examined closely, and possibly excluded from discharge.
  • Although you can file for bankruptcy more than once, you cannot do so for 7-10 years after you file, depending on what type of bankruptcy you file. you cannot file for it again for another 8 years. it is more important to include all your most burdensome debts when you file bankruptcy for this reason.
  • Bankruptcy is public. Declaring it can be embarrassing, and something you would rather not have other people know. Unfortunately, it is a matter of public record if you have declared bankruptcy, because court records are available for the public to view. On the other hand, unless knowledge is spread of your bankruptcy, it’s unlikely that someone will check court records for this type of thing.
  • Bankruptcy can be expensive. Depending on the type of bankruptcy you file, it may be a little more or a little less. Regardless, you will have to pay court costs and attorney fees, which may amount to a couple of thousand dollars you likely do not have to spend.
  • There are certain types of debt that cannot be discharged in a bankruptcy. One primary example of this type of debt is student loans. Student loans must still be repaid even if you file for bankruptcy successfully. Income tax debt is usually not dischargeable. There are other types of debt that are also not dischargeable, including child support and alimony payments owed.
  • It is also very important to note that if you had a cosigner for a debt (someone cosigned for a credit card for you, for instance), that person will still be liable for that debt.
  • You can lose property, such as your house, depending on the type of bankruptcy you file and some other factors. The bankruptcy trustee can seize your property in order to satisfy debts in some cases.
  • Some employers may not like that you have previously declared bankruptcy, should you apply for jobs in the future.

Should I Consult an Attorney Before Filing for Bankruptcy?

Yes, it is a good idea to hire a bankruptcy lawyer if you are contemplating filing for bankruptcy. The lawyer can discuss your circumstances, what type of bankruptcy suits your situation, and can review the positive and negative consequences with you in detail. There may be factors you haven’t considered, and it’s important to see the full picture before you start the process!