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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 big disadvantage of bankruptcy is that you lose property. This could include, but is not limited to, real estate, automobiles, investments, and other personal belongings. In most cases, property also includes your rights to future inheritances.

It is almost impossible to withdraw a chapter 7 filing. Once you file for bankruptcy, it is done and you are subjected to all the disadvantages. Your credit score takes a major hit. Bankruptcy will stay in your credit rating for the next seven years. Lenders usually do not entertain previously bankrupt borrowers. Thus, after bankruptcy, it can be difficult for you to get loans.

You can file bankruptcy for any amount of debt. The minimum period between two chapter 7 bankruptcies is six years.

Many filers often overlook the fact that the process of filing for bankruptcy will take a psychological and physical toll. For most people, filing for bankruptcy takes a tremendous toll as the bankruptcy seems to constantly follow them.

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.

Due to the mental trauma, it can become extremely difficult for you to manage normal family and social life. There can be serious differences between spouses. The persons will also find it difficult to get along with friends because of feelings of shame and guilt.

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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