What is the downside for filing for personal bankruptcy? 20 Answers as of July 28, 2011

It probably wouldn't, as you said your credit is already bad. In fact, it would actually give you a chance to rebuild it. Think of it this way. Right now, you're in the middle of the Pacific, treading water or sinking. You'll continue to tread water or sink to the bottom. The bankruptcy is your fresh start, and you now have a starting point from which to rebuild your credit. Otherwise, barring an incredible economic recovery, you'll remain in the same status you are now - lousy.

Filing for Bankruptcy may actually improve your credit score. How much of a change in your score will depend on your personal circumstances. Once all your debts are discharged, you no longer owe anyone any money (and no longer have a huge debt burden that you cannot pay holding you down). Some financial institutions openly solicit business from persons who have recently filed under Chapter 7. Additionally, if there are compelling reasons for filing under chapter 7 that are not within your control (such as an illness or an injury), some credit rating agencies may take that into account in rating credit after filing. The bigger question is: Should I file for Bankruptcy; and if the answer is "Yes", when should my case be filed? The answer depends on the status of your dischargeable debts, the nature and status of your nonexempt assets, and the actions taken or threatened to be taken by your creditors. As a general rule, I would not recommend filing under chapter 7 until all anticipated debts have been incurred because it will be another eight years before you are again eligible for a chapter 7 discharge. For example, a debtor who has incurred substantial medical expenses should not file under chapter 7 until the illness or injury has either been cured or covered by insurance, as it will do little good to discharge, say, $50,000 of medical debts now and then incur another $50,000 in medical debts in the next few months. If hostile creditor action threatens your exempt assets or future income, then your case should be filed immediately to take advantage of the automatic stay of collection activity that accompanies the filing of a chapter 7 case. If a creditor has threatened to attach or garnish the debtor's wages, or if a foreclosure action has been instituted against the debtor's residence, it may be necessary to file a chapter 7 case immediately in order to protect the debtor's interest in the property. This information is general and should not be construed to be formal legal advice, nor the formation of a lawyer/client relationship.

I'd need to see all your numbers to evaluate the pros and cons. For some people, long term, a bankruptcy actually may improve a bad credit score, and there are many other pros and cons besides credit reports. The question you asked is exactly why you want to sit down with a bankruptcy lawyer and have him review your actual numbers.

If your credit is bad already, then there probably is much more damage that bankruptcy could do. Negative credit reporting stays on your credit report for about 7 years, whereas bankruptcy will stay on your credit report for up to 10 years. If you file for bankruptcy, and you are in between leases then this could impact your ability to find another place to rend because often times landlords or rental companies will look at your credit report to determine if you are reliable enough to rent to. It is up to each individual landlord to make this determination on their own. Getting approved for loans may be difficult after you file for bankruptcy, but as time goes on, you may be able to obtain credit for car loans, etc. Again, this is all up to the discretion of the creditor and if they choose to extend you a loan. It may be that they will do so, but just at a higher interest rate. The reality that many creditors should be reminded of is that, while you may have just filed for bankruptcy and you may not be an attractive candidate to extend credit to, if you did just file, you cannot file a chapter 7 again for another 8 years. Therefore, any credit you obtain from them would not be able to be discharged anytime soon, so you would definitely be on the hook for it, so you could argue 'what would they have to lose in giving you a loan?'

Once your credit is shot, it can't get worse! Bankruptcy helps to rebuild your credit and most people are able to finance new vehicles about six months after discharge and get a mortgage about two years after discharge.

A bankruptcy stays or your credit report for a long time, namely, ten years. You may want to explore alternatives to filing, such as debt settlement with a consumer credit counselor.

Get rid of present problem first then worry about future.