Filing for bankruptcy can offer relief from overwhelming debt—but it’s not a decision to take lightly. While it may stop creditor calls and give you a fresh start, it’s also important to understand the cons of filing bankruptcy before proceeding.
This article explains the drawbacks of bankruptcy, how it affects your credit, financial future, and emotional well-being, and when it might be worth considering alternatives.
What Are the Cons of Filing Bankruptcy?
Bankruptcy can provide short-term relief, but it often comes with long-term consequences that can impact your finances for years.
Here are the biggest disadvantages:
Severe Credit Score Damage
One of the most immediate cons of filing bankruptcy is the damage it does to your credit score.
- A bankruptcy can drop your credit score by 130–200+ points.
- It stays on your credit report for up to 10 years (Chapter 7) or 7 years (Chapter 13).
- Makes it harder to get loans, mortgages, credit cards, or favorable interest rates.
Even after the bankruptcy is discharged, lenders may view you as a high-risk borrower.
Loss of Property or Assets
In a Chapter 7 bankruptcy (liquidation), you may have to surrender non-exempt assets such as:
- Second vehicles
- Vacation homes
- Valuable jewelry
- Collectibles or investments
Chapter 13 allows you to keep assets but requires a repayment plan, which may be burdensome for some filers.
Difficulty Getting Approved for Credit
After bankruptcy, you may struggle to qualify for:
- Mortgages
- Auto loans
- Personal or business loans
- Rental housing (landlords often run credit checks)
If you are approved, you’ll likely face high interest rates, large down payments, and low credit limits.
Long-Term Financial Stigma
Bankruptcy becomes part of your public record and can carry a social or professional stigma.
- Employers, landlords, and insurers may view it negatively.
- You may need to disclose bankruptcy on applications or during background checks.
- Some employers (especially in finance or government) may factor it into hiring decisions.
You May Still Owe Some Debts
Contrary to popular belief, not all debts are dischargeable in bankruptcy. You may still be responsible for:
- Student loans (except in rare hardship cases)
- Child support and alimony
- Recent taxes or tax liens
- Court fines or criminal restitution
- Debts from fraud or misrepresentation
Always consult a bankruptcy attorney to understand what debts will remain.
It’s Not Free—Filing Costs and Legal Fees
Filing for bankruptcy comes with court fees and attorney costs:
ExpenseEstimated CostChapter 7 filing fee$338Chapter 13 filing fee$313Attorney fees$1,000–$4,000+ (depending on complexity)In Chapter 13, the repayment plan will also require consistent monthly payments for 3–5 years.
Limited Eligibility for Future Bankruptcies
After filing, you may not be eligible to file again for several years:
- Chapter 7 → Chapter 7: 8 years
- Chapter 13 → Chapter 13: 2 years
- Chapter 7 → Chapter 13: 4 years
- Chapter 13 → Chapter 7: 6 years
This means if you fall into financial hardship again, your options will be limited.
Negative Emotional Impact
Bankruptcy often carries emotional and psychological stress:
- Feelings of failure, embarrassment, or guilt
- Anxiety about starting over financially
- Stress from legal processes and creditor interactions
While it can be a relief for some, for others, it creates emotional distress that affects health and relationships.
Summary of Bankruptcy Disadvantages
ConImpactDamaged credit scoreAffects borrowing, renting, and insurancePotential asset lossMust surrender non-exempt property (Chapter 7)Limited credit accessHigher interest, lower approvalsNot all debts are wiped outMust continue paying non-dischargeable debtsFiling and legal feesUpfront and long-term financial burdenFuture bankruptcy limitsCan’t refile for several yearsEmotional tollStress, guilt, and long-term self-esteem effectsWhen Bankruptcy Might Still Make Sense
Despite the cons, bankruptcy may be the best option if:
- Your debts far exceed your ability to repay
- You’re facing foreclosure, wage garnishment, or lawsuits
- You’ve tried debt consolidation or credit counseling without success
- You have no significant assets to protect
Alternatives to Filing Bankruptcy
Before filing, consider these options:
- Debt ConsolidationCombine multiple debts into a single loan with lower interest.
- Debt SettlementNegotiate with creditors to reduce the total amount owed.
- Credit CounselingWork with a nonprofit counselor to create a repayment plan.
- Budgeting and Expense ReductionSlash unnecessary expenses and redirect funds to debt repayment.
- Negotiate with CreditorsSome creditors may lower interest or pause payments if you ask.
Conclusion
Filing for bankruptcy is a serious decision with long-term financial, legal, and emotional consequences. While it can provide a path to relief, it’s important to understand the cons of filing bankruptcy—from credit damage to asset loss and social stigma.
Before you file, consult a bankruptcy attorney or financial counselor to explore your options. A clear understanding of the risks and benefits will help you make the best decision for your financial future.
FAQs
1. How long does bankruptcy stay on your credit report?
Chapter 7 stays for 10 years, while Chapter 13 remains for 7 years from the filing date.
2. Will I lose my house if I file bankruptcy?
Not always. It depends on your state’s exemption laws and whether you’re filing Chapter 7 or Chapter 13.
3. Can I get a loan after bankruptcy?
Yes, but expect higher interest rates and stricter lending requirements for the first few years.
4. Are bankruptcy proceedings public?
Yes. Bankruptcy filings are part of the public record, though most people won’t notice unless they search specifically.
5. Does bankruptcy affect employment?
It can, particularly in finance, government, or jobs requiring security clearance. Most private employers do not check for bankruptcy unless doing a credit check.