There are a number of positives to bankruptcy. People normally choose this path because they are unable to pay down their debts, but many also use it as a reset button. The knowledge that the possibility is there if needed also acts as a safety net for some people, so they are willing to take bigger risks in investing.
The first large positive to bankruptcy is the possibility that it will discard one's debt, or part of it. Depending on the form of bankruptcy that a person chooses, he or she may be able to discard or markedly reduce his or her debt, even at the same time as keeping valuable assets. If this isn't the situation, he or she'll definitely be able to get a large debt restructuring, which will give far better terms on the debt owed for a period of time in the range of five to ten years. During this time, as well, no one will be able to sue the debtor regarding unpaid debts, foreclose on property, or take a variety of other legal motions.
This leads to the last major benefit: an individual is able to simply go on with his or her life. If one is looking for peace from collection agency calls and threatening letters, bankruptcy is the way to get it. However, there are a number of negatives that may make a person rethink such a choice.
The largest negative to filing for bankruptcy is that it can be a really expensive procedure. The filing fee has gone up in recent years, and it is a necessity to have a legal helper or lawyer to assist with the process if one wants to get good terms. And no matter what happens, the bankruptcy will reflect on one's credit for a very long time, which may ultimately lead to loss of future credit or more expensive future credit.
Furthermore, while bankruptcy is a method of protection, or a "safety net" for companies and people, there are no guarantees with the procedure. There is no guarantee that it'll eliminate one's net, nor is there any guarantee that it will protect a person's belongings. This all depends on how positive the suggestions from one's legal counsel is, and the judge's resolve of what an individual is able to pay. In most cases this is determined by the IRS and the median income and cost of living in a location.
And finally, bankruptcy is a heart-wrenching, life-changing proposition. There are no two ways about it. Despite the benefits, the emotional turmoil is horrible, and can't be ignored. Bankruptcy should only be filed when one is extremely deep in debt, and even then all possible options must be considered. However, when there are no other choices, bankruptcy is the best way to redeem oneself from debt.
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