How bad does bankruptcy hurt you?

Answer 1

In some ways filing bankruptcy helps you immediately (ie. when very troublesome debts are discharged by the bankruptcy court). It helps you in the long term if filing bankruptcy enables you to avoid any delinquent debts being "charged-off as bad debt" (which can be disastrous for your credit rating for many years). Some lenders may be more willing to offer more debt to you after a successful bankruptcy claim, because they know you cannot make another claim for several years. Note that the bankruptcy court will liquidate your assets that have a net positive value (equity) over some threshold value (which varies from state to state -- eg. in Colorado a vehicle you own having more than $5,000 of equity probably will be liquidated). But it can be more important to use bankruptcy to protect your credit rating. Some potential employers might be biased against you as a potential employee if you have successfully completed a bankruptcy claim withing the last several years, although I have noticed that fewer applications are asking if you have filed bankruptcy within the last 10 years. However, POTENTIAL EMPLOYERS DRASTICALLY WEIGH ANY "CHARGED-OFF AS BAD" DEBT AGAINST YOU in consideration for employment. Indeed, I am convinced that most corporations taking applications via computers will automatically mark applicants having such charge-offs (on their credit records) as not to be considered (ie. automatically filtered-out), before their employment applications are seen by any person involved in the hiring process.

If you genuinely cannot re-negotiate troublesome debt in order to arrive at a personal budget that is NOT sinking further into debt and payoff the debt you are carrying within 5 years, then bankruptcy should be filed before any of your accounts are "charged-off as bad debt", and perhaps before you get 3 months behind scheduled payments for debt. Remember, you don't have to include all debt in a bankruptcy claim, and YOUR CREDIT RATING is scrutinized much more now than just 15 years ago (thanks to the internet).

An excellent primer FOR ANSWERING QUESTIONS ABOUT FILING either chapter 7 (usually those people have no income) or chapter 13 bankruptcy is:
"The New Bankruptcy, will it work for You?" 3rd edition, by Stephen Elias, published by Nolo in 2009 (I found it in the Colorado Springs public library at 346.078 E42N, Dewey decimal).