There's no question-whether or not to declare bankruptcy is a very hard decision. It affects your future credit, your reputation and your self-image. It can also improve your short-term quality of life considerably, as the calls and letters stop. Here is a list of pros and cons to consider as you decide whether bankruptcy is the correct option for you.
Cons |
Pros |
| Most tax debt is non-dischargeable. | Bankruptcy can make old tax liabilities (older than three years) go away. |
| Bankruptcy will ruin your credit for some time to come. | Missed debt payments, defaults, repossessions, and lawsuits will also hurt your credit, and may be more complicated to explain to a future lender than bankruptcy. |
| Declaring bankruptcy now might make it harder to do later if something worse comes along. | Declaring bankruptcy now can get you started sooner on rebuilding your credit, and you can almost certainly get a Chapter 13 planif there is another disaster before you are entitled to file another Chapter 7 case to liquidate your debts again. |
| Bankruptcy will not get rid of your student loan debt. | Nothing will get rid of student loan debt, and at least bankruptcy will prevent your lenders from aggressive collection action. |
| You will lose all your credit cards. | Your credit cards probably got you in this mess to start with, so it's hard to see that as a bad thing. Also, it may be possible to salvage one or two if your lawyer recommends it. |
| Bankruptcy is an admission of defeat. | Bankruptcy is facing reality, and it can also allow you to have a new start. |
| Bankruptcy is an embarrassment. | Harassing phone calls from creditors, dunning letters, repossessions, cancelled credit cards and declined charge authorizations, and lawsuits are all embarrassing. |
| Your name will be in the paper and in court records once you file. | Your name will also certainly be in court records, and may be in the papers, if you are sued to collect a debt. |
| Bankruptcy will make it nearly impossible to get a mortgage, if you don't already have one. | There are lenders who specialize in lending to "bad risks," although that is an unfair characterization to make of someone who has taken a major step to solve financial difficulties. |
| You may lose some of your luxury possessions. | Most state exemptions allow you enough so that most things you own, particularly the things you need although not luxuries, will be exempt from bankruptcy, with plenty to spare. |
| You will have to explain to a judge or trustee how you got into a financial. | Both judges and trustees have heard far worse stories than yours. |