Advantages of filing bankruptcy:
- With a few notable exceptions, bankruptcy stops all ongoing legal actions against the debtor, prevents a creditor from beginning new legal actions against the debtor, and prohibits creditors with notice of the bankruptcy case from contacting the debtor, or anyone else besides the debtor’s attorney, to discuss or seek collection of a debt;
- Most liabilities relating to credit card debts, medical bills, civil judgments, past-due accounts, and judgments due to repossessions and foreclosures may be discharged;
- A debtor may be able to keep all or most of his or her property through federal and/or state exemptions; and
- Certain liens and certain involuntary transfers (such as garnishments), may be avoided if timely action is taken.
Disadvantages of filing bankruptcy:
- Debts relating to certain taxes, governmental fines, forfeitures and restitution, criminal or fraudulent conduct, child and spousal support, drunk driving, most student loans, and willful and malicious injuries, may not be dischargeable;
- Creditors having a mortgage or security interest in a home or in motor vehicles, may be able to repossess their collateral after the bankruptcy unless the debtor reaffirms the debt or redeems the collateral (see discussion below);
- Bankruptcy filings are matters of public record and are generally noted on a debtor’s credit history for 10 years, making it more difficult to obtain credit in the future. A stigma may be associated with bankruptcy which views a debtor as being financially or socially irresponsible. Some debtors find the proceedings embarrassing since they must submit to a public examination about their financial affairs and must provide detailed financial disclosures, which are open to the public;
- In most cases, a debtor may receive a discharge only once in eight years. Debtors contemplating bankruptcy must consider their financial stability and ability to avoid the problems resulting in the bankruptcy during that period; and
- There may be significant tax consequences from a bankruptcy.