When Bankruptcy Is the Best Option

Bankruptcy may make sense depending on how much debt you have, your other financial obligations and if you’ve tried other debt relief methods.

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If you file for bankruptcy, it doesn't make you a failure, and it may even help give your finances a fresh start. Bankruptcy stops collection calls, lawsuits and wage garnishments. It erases some forms of debt; and despite what you’ve heard, bankruptcy may help your credit scores. Credit bureaus and scoring experts often say bankruptcy is the single worst thing you can do to your scores. Foreclosures, repossessions, charge-offs, collections — nothing else can drive your scores down as fast and far as a bankruptcy. But that’s not the whole story. Many people struggle so long with their debt that their credit has already been hurt by the time they file for bankruptcy. And once they do, their scores typically rise, not fall. If the debt is erased — which is known in bankruptcy court as a “discharge” — scores go up even more.

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Potential benefits of filing for bankruptcy

One of the biggest advantages of filing for bankruptcy, is the possibility of a fresh financial start. Bankruptcy isn’t a quick fix, but having your unsecured debts cleared (like in Chapter 7 bankruptcy), may give you a clean slate that allows you to improve your financial habits and circumstances. Some of the other potential benefits of filing for bankruptcy include: An end to persistent debt collection: People who file for bankruptcy benefit from its “automatic stay,” which halts almost all collection efforts, including lawsuits and wage garnishment. If the underlying debt is erased, the lawsuits and garnishment end. An end to persistent debt collection Freedom from certain debts: Chapter 7 bankruptcy wipes out many kinds of debt, including: Freedom from certain debts: Credit card debt. Medical bills. Personal loans. Civil judgments (except for fraud). Past-due rent. Past-due utility bills. Business debts. Some older tax debts. Some debts, including child support and recent tax debt, can’t be erased in bankruptcy. Student loan debt can be, but it’s rare. But if your most troublesome debt can’t be discharged, erasing other debts could give you the room to repay what remains.

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Don't wait too long to consider bankruptcy

Sometimes we feel we have a moral obligation to pay what we owe — if we can. If you can pay your bills, you should. If you’re struggling, check out your options for debt relief. But bankruptcy may be the best option if your consumer debt — the kinds listed above that can be erased — equals more than half your income, or if it would take you five or more years to pay off that debt. Here’s what you need to know: You need a bankruptcy attorney: It’s easy to make a mistake in the complicated paperwork, and an error could cause your case to be dismissed. If that happens, you end up with no relief — but still have credit scores lowered by the bankruptcy filing. You need a bankruptcy attorney: Attorneys typically want to be paid upfront: There are some legal aid and pro bono services available, but they’re often overwhelmed by demand. If you’re really strapped, call the bankruptcy court in your area to find out what resources are available. Your local bar association may be able to direct you to attorneys willing to take on some pro bono cases. Otherwise, you’ll need to scrape up some cash to cover the cost of bankruptcy. Attorneys typically want to be paid upfront: Don’t wait too long: There’s a misconception that people file bankruptcy at the drop of a hat or when they still have other options. The reality for most is quite different. Some drain assets, such as their retirement accounts, that could have been protected from creditors in bankruptcy. That’s why we advise debtors in over their heads to investigate bankruptcy first. Don’t wait too long: Explore more on About the authors Liz Weston, CFP®, is a former NerdWallet personal finance columnist and co-host of the "Smart Money" podcast. She is an award-winning journalist and author of five books about money, including the bestselling "Your Credit Score." Liz has appeared on numerous national television and radio programs, including the "Today" show, "NBC Nightly News," the "Dr. Phil" show and "All Things Considered." Her NerdWallet columns were carried by The Associated Press, appearing in hundreds of media outlets each week. Prior to NerdWallet, she wrote for MSN, Reuters, AARP The Magazine and the Los Angeles Times. Published in Tiffany Lashai Curtis is a former lead writer for the Core Personal Finance team at NerdWallet. She was previously the health writer for Livestrong.com and a freelance writer for publications like Refinery29, Business Insider and MTV News, where she focused on issues that affect marginalized communities. As a wellness facilitator, she has led conversations for organizations like Planned Parenthood and Harvard University. She is based in Philadelphia. How to Pay Off Debt: Top Strategies for 2026 Credit Score Ranges: What They Mean and How They Work How to Budget Money in 5 Steps 28 Proven Ways to Save Money What Is Bankruptcy? Definition, Types and What to Know By Sean Pyles Chapter 7 vs. Chapter 13 Bankruptcy: What’s the Difference? By Sean Pyles, Lauren Schwahn, Kate Ashford, WMS™ Dealing with Debt Collectors: Your Rights & How to Protect Yourself By Sean Pyles, Tiffany Curtis What Is a Debt Management Plan? By Jackie Veling, Sean Pyles Debt Relief: How It Works and Options to Consider By Jackie Veling, Kate Ashford, WMS™