There are several reasons to avoid filing for bankruptcy:
It is highly detrimental to your credit. In fact, bankruptcy lowers your credit score by about 250-300 points. Additionally, such a blow will remain on your credit report for around 7-10 years, and will hinder your ability to qualify for a new loan in the next 3-4 years.
You may end up losing your most valuable assets. This includes things like your car and your home. These assets will be sold and used to pay back your personal debts, unless you qualify for an exemption.
You cannot fully clear your name from debt simply by filing bankruptcy. Taxes due and student loans fall under the category of debts that cannot be waived.
It can affect other areas of your financial well-being. You’ll probably have a tough time trying to rent a home or a car. This however usually depends on whether or not filing bankruptcy was due to financial irresponsibility or because of an unexpected financial crisis.
It will be more difficult to qualify for any further lines of credit or unsecured loans. It’ll probably take some time to qualify for a secured loan (2-4 years). This means you’ll have problems trying to get a mortgage or a car loan. Unsecured loans are pretty well out of the question, though you may be able to get a hold of a secured credit card. These cards will include higher fees in order to obtain.
You’re retirement plan isn’t always in the safe zone either when claiming bankruptcy. Bankruptcy laws usually protect a portion of these savings but sometimes you will be forced to clear part of your debt by tapping into your retirement savings
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