The Truth about Bankruptcy and its Impact

Struggling with overwhelming bills and loans? Bankruptcy can seem like the easiest option, but it comes with serious consequences. Before making any decisions, understand what bankruptcy really does and what it doesn’t.

What is Bankruptcy?

Bankruptcy is a legal process to give people who can’t pay their debts a “fresh start”. A federal court reviews your finances and then decides which debts you must repay, and determines which debts can be wiped out (discharged). Once you file, you’re protected from creditor calls, lawsuits, and collection actions. But it can have long-lasting effects on your credit, your ability to borrow, and in some cases, your personal property.

What Bankruptcy Discharges

What Bankruptcy Doesn’t Discharge

Most unsecured debts can be eliminated

Credit card debt
Medical bills
Personal loans
Pay day loans
Past due utilities
Old apartment bills/ broken leases

Child support and alimony
Most student loans
Recent tax debts
Fines, penalties, fraud-related debts
Debts from DUI accidents
Debts you forgot to list

Unsecured vs. Secured Debt

Unsecured debt is money you owe that is not tied to any property, like credit cards or medical bills. In bankruptcy, these debts are usually the easiest to wipe out. Secured debt is money you owe that is tied to something you own, like a house or car. In bankruptcy, the debt can be wiped out, but the lender can still take the property if you don’t keep making payments because the lien remains.

But clearing debts isn’t the only concern; bankruptcy affects more than just what you owe.

Here’s how it can impact your life moving forward

1. Credit score drop

Bankruptcy can significantly lower your credit score. It can stay on your credit report for 7–10 years.

2. Difficulty borrowing

Lenders view you as high-risk, making it harder to get new credit, favorable interest rates, or mortgages.

3. Loss of property

Assets like properties, valuable vehicles, or luxury items can be sold to repay creditors.

4. Emotional Toll

Bankruptcy can cause financial pressure, emotional strain, and affect relationships.

5. Co-signer impact

If someone co-signed a loan for you, they can still be responsible for the debt.

6. Cost and time commitment

Bankruptcy can be expensive. Filing and attorney fees range from a few hundred to several thousand dollars. The process can take months to years to complete.

While bankruptcy can offer a fresh start, it’s not a decision to take lightly. By understanding the full impact, you can weigh your options, plan carefully, and take steps toward rebuilding your financial future with confidence.