In some cases, bankruptcy is simply the wrong tool to use, and none of the advantages will be realized. One such situation is that of the debtor whose debts are fully secured by security interests or other liens on property that cannot be impaired through bankruptcy and who does not have sufficient income to remedy a default even with all of the help bankruptcy provides. Unless there is some advantage to litigating in bankruptcy court, bankruptcy will not solve this debtor's basic problems. At most, it may discharge the debtor's personal liability for the debts and gain the advantage of the automatic stay for a month or more. Although in some cases this could be worthwhile, in most it will not ultimately benefit the debtor.
The problem of debtors in this predicament is often that their current expenses exceed their income. Because bankruptcy (except for Chapter 13's ability to stretch out or reduce certain types of short-term expenses) basically deals with assets and liabilities, it does not address this problem directly in most cases.
The opposite situation can also sometimes cause problems. If a debtor has substantial and valuable nonliened property that cannot be exempted, a premature bankruptcy will generally hasten property loss rather than prevent it. Because unsecured creditors must sue the debtor to obtain judgment liens or levies on the debtor's property, loss of the property outside bankruptcy may be quite slow. On the other hand, liquidation of nonexempt property generally occurs quickly in the bankruptcy process. And, because unsecured creditors are entitled to the present value of nonexempt property in Chapter 13, a case under that chapter would be quite costly. In this situation, the best option is probably to wait at least until execution on the property appears imminent, unless the debtor can afford the necessary Chapter 13 case.
Some debtors may be barred altogether from filing a bankruptcy for some period of time. An individual cannot file if he or she had a previous bankruptcy case dismissed in the past 180 days and the dismissal was (1) for willful failure to abide by court orders or to appear in court in proper prosecution of the case or (2) a voluntary dismissal following a request for relief from the automatic stay of section 362 of the Code.
Finally, some debtors may stand to gain little from a Chapter 7 bankruptcy because they cannot receive a discharge due to a prior bankruptcy. For these people, the prospect is somewhat brighter. In most cases, a Chapter 13 case can still provide significant relief.