2020 Best Invention

Is Filing for Bankruptcy Bad?

5 minute read Upsolve is a nonprofit tool that helps you file bankruptcy for free. Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we'll never ask you for a credit card. Explore our free tool


In a Nutshell

Bankruptcy has gotten a negative reputation over the years. But there are many benefits to filing for bankruptcy that don't get as much attention as the drawbacks. Depending on your situation, filing bankruptcy can sometimes be the best course of action.

Written by the Upsolve TeamLegally reviewed by Attorney John Coble
Updated May 4, 2022


Bankruptcy has earned a negative reputation over the years. You may’ve heard stories about people losing their property or believe that you’ll never get credit again if you file bankruptcy. Because of these myths, many people think that filing for bankruptcy is bad. This is unfortunate because the truth is that filing a Chapter 7 bankruptcy is sometimes the best way to deal with overwhelming debt. 

If you have high-interest ratecredit cards or payday loans, you may feel like you’re fighting a losing battle. That’s why bankruptcy laws provide protections for filers so they can get a fresh start without starting over from scratch. In this article, we’ll look at some of the benefits and drawbacks of filing for Chapter 7 bankruptcy.

Why Do People File Chapter 7?

Most people who file a personal bankruptcy case have seen a major change in their financial situation because of unforeseen life events such as:

  • Unemployment

  • A permanent decrease in income due to retirement or disability

  • Sudden illness

  • Accidental injury

  • Divorce or separation

  • Death of a spouse or family member

  • Work injuries

  • Automobile accidents

Some people may file because they made some poor financial decisions or overused their credit to buy things they couldn’t afford. Others file because they’re buried in debt they can’t pay off in their lifetime, such as debt from predatory payday loans.

The truth is: It doesn’t matter why you file bankruptcy. The bankruptcy court doesn’t judge your reason for seeking debt relief. And your bankruptcy discharge isn’t based on why couldn’t afford to pay your bills. Chapter 7 is available no matter why you need it, as long as you meet the filing requirements.

What Are the Chapter 7 Requirements?

There are several steps in the bankruptcy process. We’ve created this 10-step guide to help each step of the way. But here’s a general idea of the requirements:

Upsolve User Experiences

730+ Members Online
Anita Thompson
Anita Thompson
★★★★★ 9 days ago
Upsolve was my answer to filing Chapter 7 bankruptcy. I couldn't afford an attorney and I was able to fill out the forms on my smartphone. It was explained in an easy-to-use format for the everyday lay person. This software is free to use and has YouTube videos as well. I highly recommend using Upsolve if you cannot afford an attorney.
Read more Google reviews ⇾
David
David
★★★★★ 10 days ago
I just had my 341 Meeting on May 5th at 10:30 am. The trustee first asked me to be sworn in by standing and raising my right hand. It was a little weird getting out my car, standing and raising my hand because I had to work that day, but I did so. I had to confirm my name for the record and have I read the bankruptcy information sheet; did I my petitions, and am I the one that signed then. Then the yes or no questions started exactly like the Upsolve 341 Meeting video. Have I filed bankruptcy before; my marital status; length of time since my divorce; do I owe alimony or child support; am I renting; place of employment; do I own a car; how much did I pay for it; have I ever owned real estate; view and verify the information on my tax form; have I listed all creditors. The trustee then said that he needed no further information, and there is nothing more I need to do and this concludes the meeting and I can hang up and finally breathed. The meeting lasted about 15 to 20 minutes! Now I’m waiting for the 60 days to be over, and pray that there truly is nothing more for me to do. Thank you so much Upsolve for being there for me, and for the chest compressions when the stress seemed a little too much at times. Your platform has truly been a blessing. I couldn’t have done this on my own. My prayers to everyone! Remember to breathe. One final thing. The questions that are asked by the trustee are not verbatim. They are similar. Just listen carefully and answer.
Read more Google reviews ⇾
Franky Gonzalez
Franky Gonzalez
★★★★★ 11 days ago
I was kinda scared at first to use with recommendation from local pro bono legal service told me use this service to file. I took me a few months to finally file. finally did it and what a huge relief. the community in general is very helpful.
Read more Google reviews ⇾

The Good and Bad of Filing Chapter 7

Most people find that Chapter 7 gives them the debt relief they need. But there are some drawbacks to consider. Let’s explore both.

Chapter 7 Wipes Out Debt Quickly

There are many different types of bankruptcy, [1]. It’s the one most individuals and married couples file. One reason it’s popular is that it’s the quickest. When you file bankruptcy under Chapter 7, you can get a bankruptcy discharge in as little as 4-6 months. A discharge is the court order that wipes out certain debts.

Most unsecured debt can be discharged in Chapter 7. That’s debt that’s not tied to property. It includes credit card debt, medical bills, personal loans, old utility bills, some old income tax debts, payday loans, and old rent or lease payments. You aren’t required to pay back any of the debts that are discharged in your Chapter 7 case. When you receive the bankruptcy discharge, any debts that are discharged are gone forever. It’s illegal for creditors to try to collect a discharged debt.

Not All Debts Can Be Discharged in Chapter 7

If you have a lot of secured debt, like a mortgage loan or car loan, Chapter 13 may be a better fit. Also, some types of debt can’t be discharged in Chapter 7. Non-dischargeable debt is debt you can’t get rid of by filing bankruptcy. You can still file bankruptcy if you have non-dischargeable debts like alimony, child support, student loans, or manyincome tax debts, but you’ll still have to make your monthly payments on those debts after your bankruptcy. 

The upside is that using Chapter 7 to get rid of your unsecured debts may free up money to help you make these other debt payments.

Chapter 7 Stops Creditor Harassment and Lawsuits

As soon as you file a Chapter 7 bankruptcy case, an automatic stay goes into effect. This means creditors muststop trying to collect on your debt. The bankruptcy court sends a notice to all the creditors on your bankruptcy forms to tell them you filed Chapter 7. You may get a few phone calls after you file your bankruptcy case, but once you tell the creditor you filed Chapter 7, the calls should stop.

Also, creditors can’t take further actions to collect debt that’s discharged in Chapter 7 like suing you to collect a debt. This means you don’t need to worry about wage garnishments or liens against your property.

You Probably Get To Keep All Your Property

Most filers also get to keep all their property in a Chapter 7 case because the U.S. Bankruptcy Code protects certain property with exemptions. If you happen to have a valuable piece of property like a house or an expensive car, you’ll need to figure out if you have non-exempt equity in it that’s not protected. But most Chapter 7 cases are “no-asset” cases, so most filers don’t have to give up anything.

Also, because there’s no repayment plan and you don’t have to pay back debts that are discharged, you get to keep your future income. This benefit is very important because it allows you to pay your monthly living expenses and begin saving money for the future.

Your Credit Takes a Hit… But You Can Rebuild It Fast

Some people believe that if they file Chapter 7 bankruptcy, they’ll never qualify for a car loan or credit card again because their credit will be seriously damaged. This myth persists, in part, because Chapter 7 cases stay on your credit report for 10 years. But the truth is that filing bankruptcy will lower your credit score, but only temporarily. Plus, with a clean financial slate, you can begin to improve your credit score as soon as you complete your Chapter 7 case.

People who file Chapter 7 do qualify for loans and credit — sometimes sooner than they think. There are even some bankruptcy-friendly credit cards you can apply for and use to help improve your credit score.

It’s also worth considering that getting behind on your debt payments also causes damage to your credit. Missing payments or using too much of your available credit can really hurt your credit score. Plus, it puts you at risk of serious collection actions like foreclosure, car repossession, or wage garnishment. So you may want to ask yourself which will hurt your credit less — continuing to miss payments or filing for bankruptcy — and which allows you to start rebuilding your credit sooner.

Is Bankruptcy the Best Way To Get a Fresh Start?

The answer to this really depends on you. Chapter 7 and Chapter 13 bankruptcy have helped many people get the fresh start they deserve. But it’s not the right choice for everyone. If you’re not sure where to start on your journey to debt relief, consider scheduling a free consultation with a credit counselor at a nonprofit credit counseling agency. 

A credit counselor can lay out your debt relief options, help you budget, and support you in deciding how to best tackle your debt. This could be through bankruptcy or other debt relief options like debt consolidation, a debt management plan, or debt settlement.

If you’re pretty sure bankruptcy is the best option for you, you can use Upsolve’s free filing tool to complete your Chapter 7 forms. If you have questions and need some legal advice, you can contact a local bankruptcy lawyer to see if they offer a free consultation. There are also legal aid organizations in most areas that provide free or low-cost legal help for low-income individuals.

Let’s Summarize…

The bottom line is that it’s not bad to file for bankruptcy if that’s the best form of debt relief for you. Bankruptcy has many upsides that aren’t well known: It gives you a fresh start financially and wipes out unsecured debts you may not be able to pay off in your lifetime. It also relieves you of the stress of dealing with lenders and debt collectors. While it may hurt your credit in the short run, so does missing debt payments and using all your available credit. With a little effort and attention, you can rebuild your credit pretty quickly.


Sources:

  1. NFCC. (2017, September). The Different Chapters of Bankruptcy Explained. NFCC. Retrieved September 22, 2017, from https://www.nfcc.org/resources/blog/different-chapters-bankruptcy-explained/

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney John Coble

LinkedIn

John Coble has practiced as both a CPA and an Attorney. John's legal specialties were tax law and bankruptcy law. Before starting his own firm, John worked for law offices, accounting firms, and one of America's largest banks. John handled almost 1,500 bankruptcy cases in the eig... read more about Attorney John Coble

It's easy to get help

Choose one of the options below to get assistance with your bankruptcy:

Free Web App

Take our screener to see if Upsolve is right for you.

Take Screener
9,329 families have filed with Upsolve! ☆
or

Private Attorney

Get a free bankruptcy evaluation from an independent law firm.

Find Attorney

Learning Center

Research and understand your options with our articles and guides.

Go to Learning Center →

Already an Upsolve user?

Read Support Articles →

News

    + Show Articles

    Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

    To learn more, read why we started Upsolve in 2016, our reviews from past users, and our press coverage from places like the New York Times and Wall Street Journal.