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Is bankruptcy always a good idea when you are in a lot of debt?

For many people struggling under the weight of tremendous debt, bankruptcy makes good sense. For example, Chapter 7 can wipe out unsecured debts such as credit cards and medical bills. Chapter 13 reorganizes debt so it is more manageable to pay. However, there are some cases in which bankruptcy may not make sense, such as:

If all or most of the debt is not dischargeable

Not every type of debt is treated equally in bankruptcy. For one thing, it is possible for credit card bills to be wiped out, but most student loans and tax obligations must remain. So, if all your debt is due to IRS and student loan payments, bankruptcy may not make sense. Of course, it is possible you may be able to meet student loan undue hardship standards, so it never hurts to meet with a lawyer. There are also some exceptions to the IRS rule.

Other debts that remain in bankruptcy include child and spousal support payments and court-ordered payments from a criminal case.

When much of the debt is dischargeable

The good news is that many types of debt are dischargeable in a Mississippi bankruptcy, and you are able to keep assets such as retirement accounts. Your disability income and personal injury proceeds (up to $10,000 for the latter) are also protected. You are allowed to keep $10,000 worth of personal property, and for many people, that means being able to retain a car and all their savings. Equity in your house is protected, too, up to $75,000.

So, with a single bankruptcy filing, you can either wipe out or consolidate crippling credit card bills and medical bills. In such cases, bankruptcy can make a lot of sense.


If it does not make sense to file, or if you have some dischargeable debt mixed with non-dischargeable debts, it helps to be aware of bankruptcy alternatives. They include credit counseling and other types of debt consolidation.

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