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What is the Downside of Filing Bankruptcy?

5 Things That Really Aren’t That Bad

Here’s a summary of what is the downside of filing bankruptcy. But don’t despair! For most, the “upside” or benefits far outweigh the downside of filing bankruptcy. It’s true that bankruptcy can stay on your credit for up to 10 years. And, it’s true that filing bankruptcy will adversely affect your credit for a time.

You can’t discharge some debts in bankruptcy. Filing bankruptcy can delay qualifying for some loans for a period of time. Despite the downside of filing bankruptcy, if it is properly handled, there are significant advantages to filing bankruptcy. And, credit rebuilding after filing bankruptcy takes only a short time if done properly.

Truth About Bankruptcy

Debts Not Discharged in Bankruptcy

Some debts don’t get discharged in bankruptcy. Student loans, child support, recent (3 years) taxes, and some other debts escape discharge in bankruptcy. Most people understand, and even expect this. Most people do not want to discharge all debts in bankruptcy. They prefer to keep some, like their cars or house, and continue to pay them. Some debts can be discharged in Chapter 13 that cannot be discharged in Chapter 7.

Most debts, however, are discharged in bankruptcy. Credit cards, medical bills, and personal loans are all discharged in bankruptcy. You can even discharge debts from lawsuits in bankruptcy. This is an “upside,” not a downside of filing bankruptcy.

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Bankruptcy Can Have a Negative Impact on Credit.

Bankruptcy will have a negative impact on your credit, but it is possible to overcome this by taking the right steps. The negative impact on your credit caused by a bankruptcy will decrease over time. Credit bureaus will report bankruptcy on your credit for up to 10 years. But this doesn’t mean that the negative impact of bankruptcy will last that long. If you take the proper steps to rebuild your credit after filing bankruptcy, it is possible to obtain a credit score of 650 or higher in as little as a year. This eliminates what many think is a downside to filing bankruptcy.

Filing Bankruptcy Will Delay Getting Some Loans.

One downside of filing bankruptcy is delay in getting some loans. Mortgage lenders often require that you wait two to three years after discharge before getting a new mortgage loan, and other large loans may take some time to qualify for. But, by taking the proper steps to rebuild your credit after bankruptcy you’ll find that there is much less of a downside of filing bankruptcy, and you could obtain a credit score of over 650 within a year of your bankruptcy discharge.

What Are the Advantages of Filing Bankruptcy?

There are many advantages to filing bankruptcy. Most consumer debts get discharged in bankruptcy, and most people report significant stress relief as well. Often, filing bankruptcy on your debts makes it possible to keep secured property, like your car or your house. So this is not a downside of filing bankruptcy at all, just the opposite, in fact.

Filing bankruptcy instantly improves your cash flow, enabling you to make all of your other required debt payments on time, which helps your credit score. Discharging debt in bankruptcy improves your debt to income ratio, and many lenders will consider this favorably.


There is a downside of filing bankruptcy, just like there is a downside to any debt relief option. For many, the significant benefits of bankruptcy outweigh the downside of filing bankruptcy. Many who file bankruptcy report less stress, improved cash flow, and improved credit in less time then they expected.

If you’re thinking about bankruptcy, know that there are upsides as well as downsides. The best way to identify them all and compare downside of bankruptcy to the benefits is to talk with one of our trained professionals. Because, you want to know how non-bankruptcy options compare as well (and there are downsides to these options, as well).

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