What Are the Downsides of Filing for Bankruptcy?

Bankruptcy filers can overcome post-filing debt and credit challenges with careful planning.

By , Attorney

Bankruptcy provides many people with a fresh financial start, but it comes with negative consequences, too. You can avoid inconvenient and expensive surprises after bankruptcy by knowing what to expect and planning accordingly. Some of the significant downsides associated with bankruptcy include:

  • owing debts that survive bankruptcy, and
  • problems securing housing, transportation, and bank accounts.

You can also plan by reading answers to common questions people have about bankruptcy. And find out why you need a bankruptcy lawyer when filing your case—our quick, 10-question quiz can help you spot potential bankruptcy issues fast.

One of Bankruptcy Biggest Downsides? Filing Doesn't Discharge All Debts

Bankruptcy erases or "discharges" many types of bills—and you might be able to eliminate all of yours. But bankruptcy doesn't erase all obligations.

You'll repay nondischargeable debts like recent tax balances, child support, alimony, and student loans, although you can get rid of student loan debt in some situations. When and how you'll pay nondischargeable debts will depend on whether you file for Chapter 7 or 13.

Another Downside? Unexpected Credit Challenges After a Bankruptcy Filing

Your credit report will notate the debts discharged in bankruptcy when all goes right. Most filers enjoy seeing the labels because they tell creditors that the filer is no longer responsible for paying the debts. It matters because your discharge order won't list the debts successfully discharged in bankruptcy.

But the notations on your credit report will remain for a long time—ten years for a Chapter 7 filing and seven for Chapter 13. And although the impact will fade with time, your relations with lenders, landlords, and banks will be affected significantly during the years immediately following the bankruptcy.

The best course of action? Expect and plan for the following challenges:

You Can't Rent an Apartment or Get a Bank Account for a Year or Two

You'll want to secure a place to live before filing for bankruptcy because many apartment complexes and other properties handled by property management managers won't rent or lease to you until a year or two has passed. Many filers have to stay with friends and family or take the time to find a sympathetic landlord.

You'll face similar challenges when trying to open a checking or savings account. Be sure you have at least one bank account in good standing before filing because your current bank will close your account if you discharge money owed on an overdrawn account. Learn more things you should know before filing for bankruptcy.

You Can't Get a Mortgage or Car Loan Right Away

With a bankruptcy on your credit report, you'll have to wait a bit before qualifying for a mortgage or car loan. You should plan on a year to two passing before getting a decent interest rate on a car loan. It will likely be a minimum of two to four years before you'll meet lending guidelines and qualify for a mortgage. Learn more about getting a mortgage after bankruptcy.

You Can't Get Another Bankruptcy Discharge Immediately

You won't want to file for bankruptcy if you're still incurring medical bills or dealing with another ongoing financial challenge because you must wait several years between bankruptcy discharges. For instance, eight years must elapse between Chapter 7 discharges. The discharge waiting period varies depending on the previous chapter and the chapter you'd like to file.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

You'll find fillable, downloadable bankruptcy forms on the U.S. Courts bankruptcy form webpage.

Related Information

Should I Ignore a Debt Collector's Calls and Letters?

How Much Debt Do I Need to File for Bankruptcy?

Will I Lose All My Property If I File for Bankruptcy?

Will Bankruptcy Affect My Spouse?

When the Creditor Gets a Lien Against Your Property

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

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