5 Reasons You Should NOT Declare Bankruptcy

Bankruptcy is not for everyone. While it can change your financial situation and get you out of debt, it does come at a cost.

Below, we will explore a few reasons why you should not declare bankruptcy. This will give you some things to consider before filing.


5 Reasons You Should NOT Declare Bankruptcy

Bankruptcy can impact your life in various ways, good and bad. Speaking on the positives, it can relieve you from debt and help you get back on your feet after struggling with your finances for so long.

When should you reconsider declaring bankruptcy? Here is what our attorneys have to say:


#1: You can afford to pay your debts.

If you have the money to repay your debts, it is best not to declare bankruptcy. What is a downside of filing for bankruptcy? You may get a large hit to your credit, which can take a long time to build back up. That can affect your ability to purchase a home or even apply for something basic that you might need, like new furniture.

Bankruptcy also makes your case public. To avoid having other people know you are in the bankruptcy process (especially if you can afford to pay back your debts), we recommend working with a financial advisor instead.

They can help you create a plan to pay off your outstanding debt at a timeline that works for you. A lawyer, such as ourselves, can also review your case to let you know if bankruptcy is a good option after all. Declaring bankruptcy might feel like the only way out right now, but we assure you that it is not. You are rarely, if ever, out of options.


#2: Most of your debt is tax debt

Bankruptcy does not clear all tax burdens. While Chapter 7 bankruptcy can eliminate some tax debt, it does not include tax liens you had before filing for bankruptcy. Also, to get debt relief from your taxes, you must show that you have had the taxes for a while, you acted with integrity and without any signs of “tax fraud,” and you meet any other guidelines set by your local court.

If a lien is in place, you must pay every penny in order to sell your existing property and give the new owner the title. Also, with Chapter 7 bankruptcy, you may need to sell your assets to get rid of your tax debt. In the case of Chapter 11 bankruptcy, you can usually work out a debt repayment plan within reason.

Many Americans are facing large amounts of tax debts. If you wish to rid yourself of this debt, talk to your accountant and attorney about your options. Gravis Law can provide guidance on whether your tax debt has a chance of getting discharged in bankruptcy or whether it is worth it to pursue another avenue.


#3: Student loans make up most of your debt

Our national student loan debt is about $1.73 trillion, with the average debt per person about $39,351. Going to college is far from cheap, and it can put you in debt quickly. If the majority of your debt is from student loans, we understand why you are considering bankruptcy. However, there are many other options to delay your loan repayment, such as applying for student loan relief.

Not to mention, bankruptcy does not always cancel out student loan debt. You can discharge it in some cases, but you must exhibit that the debt repayment “will impose an undue hardship on you and your dependents.” This is challenging to prove.

The court may utilize a Brunner test to determine whether you qualify to have your student loans discharged in bankruptcy. One of the requirements is that there must be financial evidence that you cannot afford the most basic living standards for you or your little ones while repaying your loans. However, there is no guarantee that your loans will be discharged, and it is often difficult to initiate, which could mean that you started the bankruptcy process for nothing.


#4: Bankruptcy can result in asset loss

Think of some of your most prized possessions. For many Americans, they are cars, houses (including vacation homes), and boats. There is a high chance that if you file for Chapter 7 bankruptcy, you could lose some of these assets. (You are not required to liquidate your assets for Chapter 11 bankruptcy.) The money they are worth may go toward your outstanding debt.


If you are not worried about losing these assets, bankruptcy is a great option. However, if you would rather hang onto your family home and pass it onto your child one day, it is best to talk to a bankruptcy lawyer before filing the paperwork.

Keep in mind that each state’s exemptions are different. If you are not sure if your assets are protected, talk to your attorney. Gravis Law’s bankruptcy lawyers can advise you on whether you qualify for bankruptcy and what you can expect regarding your assets.


#5: You have business debts that you did not personally guarantee

Many business owners make a personal guarantee to repay business loans in the event that the business cannot pay for itself. If you do not have a personal guarantee, it would be considered “unsecured.” This type of debt cannot be discharged in most cases. The loan provider can pursue your business assets to get the loan repaid.

If you have a sole proprietorship, you have a higher risk. Your business does not give you limited liability, which means that debt collectors may pursue both your personal and business assets.

This goes to show that bankruptcy can affect your personal account, even if you are declaring bankruptcy for your business. Knowing this can save you time and headaches as you figure out whether it is worth it to file.


Consult a bankruptcy attorney today with questions

If you are looking to stop debt collectors from knocking on your door, and you are thinking about declaring bankruptcy, get in touch with an attorney first to see if bankruptcy is the right option.

Bankruptcy is not suitable for every situation, many of which include tax debts and student loans. However, when you work with a qualified bankruptcy attorney, you can find out if bankruptcy is the best option for your unique situation.

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