What Are Advantages of Filing Bankruptcy

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 16, 2022

There are four main advantages of filing bankruptcy .

  1. Successfully filing for bankruptcy activates an automatic stay that prevents creditors from pursuing debt collection.
  2. You can exempt some property from collection.
  3. Filing for bankruptcy can discharge most if not all of your debt.
  4. By removing debts, it makes it easier to move forward and rebuild your credit rating.

What Are Disadvantages Of Filing Bankruptcy

Here are three disadvantages of filing bankruptcy:

  1. You may lose some of your property to your creditors. You may be able to exempt some of it, but you won't be able to save it all.
  2. Your bank will most likely cancel your credit cards when you file.
  3. Lastly, bankruptcies stay on your credit record for 7-10 years.

FAQs

What does bankruptcy mean?

Bankruptcy is a legal proceeding in which a debtor declares their inability to pay back their creditors.

What are the different types of bankruptcy?

There are three common types of bankruptcy known as “chapters” in the U.S. bankruptcy code, Ch. 7, Ch. 11, and Ch. 13, each with varying criteria and consequences.

What is Chapter 7 bankruptcy?

Chapter 7 is known as a liquidation bankruptcy. Most of your property will be sold to pay off your debts, then whatever debt in excess of the value of your liquidated property will be cleared.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a reorganization bankruptcy. With Chapter 13, you are able to keep your personal property and reorganize your debts to a payment schedule that enables you to pay back your creditors over time (often 3 to 5 years).

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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