Some people view declaring bankruptcy as a failure or an admittance of defeat, while others view it as a way to get a fresh start and a second chance. The truth is that there are advantages and disadvantages to filing for bankruptcy, and being more informed can help you make the right choice. Before you decide to file for bankruptcy or throw the option out of the window entirely, let’s look at the pros and cons of filing for bankruptcy.

The Advantages of Filing for Bankruptcy

Filing for bankruptcy can yield the following benefits:

You Get a Fresh Start

Whether you file for Chapter 7 or Chapter 13 bankruptcy, it can help you get rid of debt on credit cards and medical debt. While it may not cover every kind of debt, such as student loans, it takes much of the pressure off your shoulders financially. Essentially, you get a fresh start to make better financial decisions, which can also provide a lot of emotional relief.

You Can Keep Your Assets

One of the most common myths about filing for bankruptcy is that someone will come into your home, take all your possessions, and liquidate all your assets. This simply isn’t true! Most of your assets are under protection. While you may have to sell some luxury items, bankruptcy protection laws safeguard your valuables, such as your home, clothes, vehicle, and important accounts.

Creditors Can’t Come After You

When you file for bankruptcy, you’re granted what’s known as an “automatic stay.” This means that creditors and collectors cannot pursue payments or take legal action against you while the bankruptcy is pending. Additionally, your future earnings aren’t used to repay creditors either.

The Disadvantages of Filing for Bankruptcy

Be aware of these potential cons when filing for bankruptcy:

It Can Become Harder To Borrow in the Future

This may go without saying, but filing for bankruptcy can affect your credit score, which makes it difficult to borrow money in the future. You may also have trouble renting, buying a home, and finding good car insurance. While these things don’t become entirely impossible, they make things more challenging.

It Can Be Expensive

Outside of your payment plan, there are service and court fees that you’ll need to pay off, which can cost anywhere from $1,000 to $3,000, depending on which type you file for. Pair this with the long-term impact on your finances, and it can be a hefty burden financially. The idea is that once your debt gets discharged, you have a clear path to make better financial choices.

It Doesn’t Solve the Root of the Problem

This certainly isn’t always the case, but poor money management skills can sometimes be the root cause of financial problems. If you don’t have a solid plan in place or learn from the mistakes of the past, you can end up right back in the same situation. While you can file for bankruptcy a second time, there are specific wait periods that vary depending on what kind of bankruptcy you file for.

Should You File for Bankruptcy?

Ultimately, deciding whether to file for bankruptcy depends on how you feel about the pros and cons. If you can handle the responsibility that comes with it, then take the opportunity. If not, consider looking into bankruptcy alternatives such as credit counseling or a debt management plan.