When you’ve reached your financial limit and don’t know how you can possibly pay all your debts, bankruptcy may well be your best option. Bankruptcy can provide a fresh start and big weight off your shoulders. Take a look at some of the advantages and disadvantages of bankruptcy.

Benefits of Filing for Bankruptcy

When you decide to file for bankruptcy, you have three major advantages over your current situation.

No More Calls from Creditors

When you owe a company money, they often make themselves as annoying as possible until they get the money back from you. You may receive calls from creditors several times a week, if not several times a day, and you can only avoid the telephone for so long.

When you successfully declare bankruptcy, your creditors get an immediate order to stop contacting you and demanding payment. Your phone will stop ringing and you can breathe easier.

Elimination of Many of Your Debts

After your successful bankruptcy case, the court will discharge some, if not all, of your debt. You never have to worry about paying back those debts. Those sums are off your record, and you can stop negotiating payment plans, fighting interest rates, and trying to scrape funds together every month. Not all debt goes away. In most circumstances you will not be able to eliminate student loans, child support, spousal maintenance and taxes (taxes can be eliminated if old enough).

New Start for Your Finances

With the weight of those debts off your shoulders, you can start fresh with your finances. Now that you don’t have to worry about payments, you can build up your savings, achieve a better quality of life, and provide more for your family.

Drawbacks of Filing for Bankruptcy

Effect to Your Credit

Credit agencies are required to list bankruptcy on your credit report. That notice will remain visible for up to 10 years depending on the type of bankruptcy you file for. However you will get offers to buy cars a soon as you file bankruptcy. You will likely receive credit card offers within about 6 months of the completion of your case if not sooner which if used properly can help you reestablish your credit. You may be able to purchase a home through FHA a year after your bankruptcy is done if you have reestablished your credit and are employed. In Chapter 13 Bankruptcy you may be able to purchase a home while your case is still active.

Protection of your Assets

Each state either has its own list of assets that are protected or uses the Federal Government list of protected assets. You will need to contact your attorney to see which assets are protected and which are not.

When to File for Bankruptcy

If you have decided that bankruptcy is an option then you need to consult with a bankruptcy attorney to determine whether you should file a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy and when would be the best time for you to file.


The Colorado Bankruptcy exemption for jewelry which includes articles of adornment and watches increased from $2,000 per debtor to $2,500 per debtor. This includes jewelry that you purchased or inherited. If you own the jewelry you must include it in the calculation. The value is what it would sell for at a second hand retailer because if the Chapter 7 Bankruptcy Trustee were to try to sell the property for the benefit of the creditors, the jewelry would likely be sold at auction. So the price at which a pawn shop might sell it for and not what they would give you for it if you were to pawn it or sell it to the pawn shop or a store that sells jewelry second hand.


The Bankruptcy exemption for clothing increased from $1,500 per debtor to $2,000 per debtor. This includes clothing of your dependents. Used clothing generally does not have a great deal of value second hand. Think in terms of what it would sell for at a second hand clothing store, Good Will store, ARC Store or other second hand store. Clothing includes basic wearing apparel, coats shoes, etc. Expensive designer clothing or shoes may have significant value.


The Bankruptcy exemption for tools of the trade has changed in two ways. First, the exemption has been divided into two categories. The first category is tools of the trade kept and used by a debtor in his or her primary occupation. This exemption increased from $20,000 to $30,000. The new category is a lower exemption of $10,000 for tools of the trade kept and used by a debtor for other than his or her primary occupation. So for example, you have a part-time job doing lawn maintenance and have various lawn equipment used to do the job. The tools of the trade exemption for the part-time job would be limited to $10,000. Remember, the key is what would it sell for at a second hand retail store selling used equipment and not what it would cost to replace it new.