Many people will use bankruptcy as a debt repayment option without fully understanding all of the disadvantages of bankruptcy. While a lot of bankruptcy trustees claim bankruptcy provides you with a clean slate to start fresh, many people realize after-the-fact that filing for bankruptcy can actually push you into a deeper financial hole. After all, bankruptcy was created to be disadvantageous to all involved, not just the creditor. That means you really need to understand your financial situation before filing for Chapter 7.

The first of all, the biggest disadvantage of bankruptcy is that it doesn’t eliminate all your debts. You can have debts even after your assets are liquidated and distributed to your creditors. These debts can be collected even after your case is closed. Anyone who cosigns your loan can also be liable.

Another disadvantage of bankruptcy is that you not only lose your existing property, including (in some cases) real estate, automobiles, investments and other personal belongs, but your rights to future property. In most cases, “future property” can include winfalls such as an inheritance.

Where Chapter 7 is considered, you will need to be committed to your decision for at least seven years. This is because a bankruptcy discharge is irreversible, meaning you cannot repay any unpaid debt after the bankruptcy has been discharged. As a result, your credit score will suffer and most lenders will not entertain granting you additional credit, even if you have the means of repaying that credit several times over.

Debtors are able to file for Chapter 7 for nearly any amount of debt, however a minimum of six years must elapse before a debtor can file once again.

Another often-overlooked disadvantage is that bankruptcy will take a mental and physical toll on filers. Since a discharged bankruptcy creeps up regularly over time, a discharge can actually have traumatic effects on filers.

For many, the stress of bankruptcy leads to marital problems, including divorce. In some cases, this can deepen the financial strain of a discharged bankrupt, leaving them feeling even more defeated or beaten. Remember, six years must pass before the next bankruptcy filing. Relationship stress can cause problems with social circles and not surprisingly, bankruptcy also increases the likelihood of alcohol abuse. The feelings of loss are rather strong in those who have gone bankrupt.

As a result of the feelings of loss, defeat, and trauma, managing family and other social relationships can pose problems for many. With a difference in opinion among spouses, such feelings are only amplified. Shame and guilt often make it difficult to face close friends and acquaintances.

With the disadvantages of bankruptcy in mind, there are actually some advantages for borrowers with tremendous debt. This includes the mandatory credit counseling course that must be undertaken at least three months prior to the filing. This small requirement can actually help some debtors better manage their finances and find ways to avoid bankruptcy. In cases where bankruptcy is truly used as a last resort and where asset values fall short of debt owed, Chapter 7 might be the better option. However, bankruptcy should only be used as that: a last resort.

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