Attorney at Law

The Benefits of Bankruptcy and When to File for It

Daisy Rogozinsky
June 28, 2022
Last reviewed by
Boruch Burnham, Esq.
April 13, 2023

Filing for bankruptcy is an option worth considering for people drowning in debt, facing foreclosure, or being harassed by creditors and bill collectors. However, it is a grave decision with lasting consequences that should not be taken lightly.

If you’re considering filing for bankruptcy, it’s essential to understand its benefits and the signs that might indicate the time is right for you to file. In this article, we’ll outline the main advantages of bankruptcy and suggest ways to determine whether this is the appropriate time for you to file.

The Benefits of Bankruptcy

Bankruptcy was created to provide relief to debtors, offering a number of benefits as such. We list some of the most significant ones below.

Temporarily Halting Debt Collection Efforts

When you file for bankruptcy, an automatic stay is put into place that orders creditors to stop their collection efforts. If you are currently suffering from the stress of aggressive debt collectors calling and sending ceaseless letters, bankruptcy can restore your peace of mind by making them stop their activities.

Getting Rid of Debts

One of the most valuable benefits of bankruptcy for many people is the discharge of their debts. Precisely what happens with your debts will depend on the type of bankruptcy you file. In a Chapter 7 bankruptcy, eligible unsecured debts will be discharged and your slate wiped clean, giving you a fresh start either by wiping out your debt entirely or by leaving you with a much more manageable set of liabilities. In a Chapter 13 bankruptcy, you will first be required to pay off various types of debt per a court-approved repayment plan and schedule, after which your remaining debt may be discharged. However, it should be noted that certain types of debt, such as student loans, child support or alimony, and certain tax liabilities, are non-dischargeable under either form of bankruptcy.

Preventing Repossession, Foreclosure, Wage Garnishment, and Utility Shutoffs

Several things come with being insolvent and buried in debt that can cause significant strife and stress. These include:

  • Repossession - When the lender takes back your property after you default on your debt 
  • Foreclosure - When a lender sells your property to satisfy your loan debt
  • Wage garnishment - When creditors take money from your paycheck
  • Utility shutoffs - When utility companies shut off utilities such as your electricity and water because you are behind in paying your bills

Thankfully, the automatic stay triggered by bankruptcy will temporarily halt mortgage foreclosure proceedings, repossession of your property, wage garnishment, and utility shutoffs. This gives you the time and relief you need to catch up on payments and protect your property from repossession in the meantime.

When to File for Bankruptcy

All the benefits listed above may make you want to rush to file for bankruptcy as soon as possible. Even if bankruptcy is a good choice for you, it may not be the best time to file for bankruptcy. We share some factors that can indicate that this isn’t a good time to file for bankruptcy. If these are true for you, it may be better to wait until most or all of them no longer apply.

1. When You Can Afford to Pay Your Debts

Bankruptcy is a process created for people who cannot pay their debts. If you can afford to pay some of your debts, it is better to do so without initiating bankruptcy proceedings. This is because bankruptcy can have significant long-term consequences, such as seriously damaging your credit score and raising your insurance premiums.

2. When You Can Negotiate With Your Creditors

Before you decide to file for bankruptcy, it is recommended that you first try to negotiate with your creditors to see if you can agree on terms that will make it possible for you to pay your debts. To avoid the legal hassle and cost of bankruptcy, creditors might agree to repayment schedules that will allow you to get current on your debts or even reduce your debts. You may also have options for your mortgage, such as a repayment plan or forbearance, which will allow you to stop making payments for a while.

3. When Your Income Exceeds a Certain Threshold

Individuals or households with an income exceeding the state median (after deducting certain allowed expenses) are not eligible for Chapter 7 bankruptcy. Instead, they may file for Chapter 13 bankruptcy, which requires that they make a payment plan for the repayment of certain portions of their debt. This option is often less desirable than Chapter 7. So if you will at some point be able to pass the Chapter 7 means test, it may be better to wait until then to file.

4. When You Won’t Have Any New Debts Soon

If you expect to have new debts in the near future, it might be better to hold off on filing for bankruptcy. This is because the bankruptcy process only discharges debts that you have at the time of filing. If you take on new debt after beginning the bankruptcy process, it will not be wiped out. For this reason, you should wait until you are done taking on new debt before you file for bankruptcy. However, this latter point should be approached with extreme caution, as taking out new loans or using your credit cards for expenses that are not strictly necessary in the months preceding your filing can be construed by the bankruptcy court as a fraudulent activity, and it may then rule that the debt should be nondischargeable. 


Bankruptcy can offer significant relief and represent a fresh start for many people struggling with debt, aggressive debt collectors, and the threat of foreclosure or repossession. However, it also has severe consequences, meaning you shouldn’t file for bankruptcy if the time is not right. But if everything aligns, bankruptcy might be the saving grace you seek.

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