What is the Downside of Filing for Bankruptcy? Best Answers Explored

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If you find yourself in a dire financial situation, you may be asking yourself, what is the downside of filing for bankruptcy? When you file for bankruptcy protection, you are essentially making the declaration that you are not able to fulfill payment of debt.

You may be worried, asking yourself, what is the downside of filing for bankruptcy?  

If you declare bankruptcy, it can remain on your credit report for up to 10 years, which has a substantial impact on your credit worthiness. 

It’s good to consider all aspects of your financial options and decisions, so while you may feel that bankruptcy is your only choice, it’s important to keep in mind that there are implications of pursuing it. 

Notable downsides of filing for bankruptcy include: 

  • Higher interest rates on credit cards and loans after filing 
  • Limited options when trying to find a lender to work with you 
  • Required security deposits when taking out credit cards or loans 

In some cases, filing for bankruptcy will allow you to have the opportunity to reinvent your financial situation and start again. That said, it can also come with many disappointing downsides that could deter you from the option altogether. 

Answered: What is the Downside of Filing for Bankruptcy?  

It can be extremely difficult to prove your creditworthiness after having a bankruptcy on your credit report. Some of even the most standard services become inaccessible. 

Obtaining a credit card, taking out a personal loan or an auto loan, and even renting an apartment cna become extremely difficult, if not impossible. 

In addition to the numerous credit-related issues you will have, sometimes you’ll be left with nondischargeable debt that is unaffected by bankruptcy. You will still be responsible for paying this debt back. 

Nondischargeable debt can include things like student loans, child support, property debt, tax debt, spousal support, and criminal debt. 

Does that mean that bankruptcy will leave these debts untouched? Not necessarily. Some chapters of bankruptcy will help you be able to better manage and pay off the nondischargeable debts. 

Even still, if you were hoping to have a completely clean slate after filing for bankruptcy, you’ll be disappointed if you hold nondischargeable debt. 

Limited financial options for an extended period of time and nondischargeable debt are two of the main answers to the question of what is the downside of filing for bankruptcy. 

These factors can certainly impact you and your quality of life for years to come, so it’s very important to weigh the pros and cons very seriously before you make a final choice. 

What Does Bankruptcy Mean? 

There are a variety of reasons you may find yourself in a position where you must consider declaring bankruptcy. Sometimes things out of your control take place, including unemployment, death in the family, unexpected or lengthy illness, and more. 

These life events can take an extreme toll on people and may get you into deep debt that becomes impossible to manage. When you have a high amount of unmanageable debt, your health suffers through increased stress and anxiety; you may even be unable to take care of your daily needs. 

Having many late credit card payments and other types of debt piling up needs to be taken care of as soon as possible before it becomes a bigger issue in the long term.

When you find yourself in this situation, there are a number of bankruptcy chapters that you can apply for. This offers you the chance to significantly decrease or completely remove the debt. A federal process, bankruptcy protection is never filed or tried in a state court. 

You are protected by federal bankruptcy laws and ultimately help you to begin your financial journey anew. 

There are chapters for both business as well as consumer bankruptcy filing. This can also provide some protection for creditors who may recover some of the owed debt through a reorganized or restructured payment plan. 

If you are uncertain about filing bankruptcy, you may want to consult a lawyer to assist you in filing the correct bankruptcy chapter according to your particular financial needs. 

Best Bankruptcy Alternatives 

Before you decide to file for bankruptcy, you should deeply consider what is the downside of filing for bankruptcy and look to address the issue in other ways. Bankruptcy can be your final option, but try to take advantage of other steps first. 

If you absolutely cannot pay any or all of your debt, bankruptcy might be the only option. If you’re simply looking to get things under control and repair your credit for your financial future, there are some alternatives to bankruptcy that might make more sense to you, including: 

  • Discuss your credit report and financial situation with a credit repair company such as Cred Increase. They will help you to dispute any debts and ensure that all avenues are explored for best results on your credit report. 
  • Communicate directly with your creditors so you can find a mutually-beneficial agreement to settle the debt. 
  • Ask your creditors to offer you payment extensions, deferments, or reductions until you’re able to recoup and pay off your debts. 
  • A final option for debt repayment is consolidation. If your credit is up to par, you may be able to consolidate all of your debts into one payment, making it more manageable.

Even if your credit isn’t very good and you feel that you couldn’t get a debt consolidation loan, working with Cred Increase will help you improve your credit score and get you to the level you need to be at in order to resolve your debts without filing for bankruptcy.

What is the Advantage of Filing for Bankruptcy? 

Now that we can answer the question of what is the downside of filing for bankruptcy, we should take a look at any possible advantages. Not everything about bankruptcy is completely negative. 

If you have an extremely heavy debt load that you just can’t get out of, bankruptcy may certainly become the most viable option for you. In addition, you’ll be able to take advantage of the following benefits: 

  • Ability to retain some personal property such as your home and vehicle through bankruptcy protection. 
  • Total relief of all dischargeable debts, removing your responsibility to pay them back. 
  • No more harassment and excessive contact from debt collectors or lenders. 
  • Improvement of credit score over time when discharged debts are removed from your credit report. 

It can certainly take a long time for your credit history to recover, but this may also be assessed by a credit repair company. Cred Increase can help you rebuild your credit even if you have a bankruptcy listed, which is good news. 

It can take time to recover from a bankruptcy, but it may just give you the relief you need to turn the page and create a new financial reality for you, your family, and/or your business.

FAQ: What is the Downside of Filing for Bankruptcy?

While you are asking yourself what is the downside of filing for bankruptcy, some of the following questions also come to mind. 

We’ve answered the following 6 questions to help you understand if bankruptcy is a good choice for you. 

How Much Do You Have to Be in Debt to File Chapter 7 Bankruptcy? 

There isn’t a specific amount of debt that qualifies a person for Chapter 7 bankruptcy. This is a good thing, but your income could play a role and affect your eligibility. You’ll need to determine if you’re eligible through a “means test” for Chapter 7 bankruptcy protection. 

What is the Difference Between Chapter 13 and Chapter 7 Bankruptcy? 

Typically, Chapter 7 bankruptcy is cheaper and quicker than filing Chapter 13 bankruptcy. There are pros and cons to both types of bankruptcy, but Chapter 7 bankruptcy typically makes the most sense when considering what is the downside of filing for bankruptcy. This is especially true for the average person with limited assets.

What Will I Lose if I Declare Bankruptcy? 

Depending on your selection, bankruptcy protection will help you to retain most, if not all, of your assets. What is the downside to filing bankruptcy? Some of the debts are not dischargeable, but you’ll be able to hold on to the things that are dear to you, which is important. 

What Happens When I File Bankruptcy? 

When you declare bankruptcy, you are going to file a petition for your declaration via federal court. After this is filed, creditors will be informed and they will need to stop pursuing any debt that you currently hold. 

What is the Process of Filing Bankruptcy? 

The first thing you’ll need to do is accept the answer to what is the downside of filing for bankruptcy and approach everything with an objective attitude. You’ll want to look at all of your options and decide on which type is right for you. 

You’ll need to get your documents together and then file a petition for bankruptcy to begin the process. 

How Long Does it Take for Chapter 7 Bankruptcy? 

The standard Chapter 7 bankruptcy takes about 4 to 6 months to complete from the time you file to when you’ll receive the final discharge of debt. There are a range of factors that can influence the length of time your bankruptcy case will take. 

By Veronica

6 Posts

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By Veronica

6 Posts


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