Bankruptcy is a legal process that can give you a clean financial slate and by going through bankruptcy, many if not most consumer debts can be forgiven. However, filing for bankruptcy is a very serious decision with serious financial and even emotional consequences. For starters, a bankruptcy will remain on your credit report for up to 10 years and can make it difficult to get future credit at non-loan-shark rates, if at all. As a general rule, you should file for bankruptcy only if:

1. You’re in a true financial emergency, and
2. None of the other available debt management methods will work for you, and
3. Your creditors are unwilling to work with you

Otherwise, it would be better to avoid bankruptcy, tough it out, learn to make extra money ^[2], and claw your way out of debt ^[3]. Bankruptcy offers the allure of a quick fix but it can bite you big time down the road.

Bankruptcy is a gut-wrenching, life-changing event that causes lifelong damage. –Dave Ramsey ^[4]

What is Bankruptcy?

Bankruptcy is a legal process that gives debtors relief from debts they cannot pay and, in some cases, compensates creditors for the money that debtors owe them. Originally, bankruptcy laws were enacted to protect creditors but over the centuries these laws have evolved to protect debtors to a greater extent.