Bankruptcy Can Hurt for Decades

Jay Zagorsky, co-author of the study and a research scientist at Ohio State, notes that high prices for gas, food and housing, combined with crushing debt, can make bankruptcy seem like an easy way out with a clean slate.

"But," he adds, "to experience what people may heard of as a 'fresh start,' that may take longer than they expect or would like."

The survey showed a few bright spots, but overall, bankruptcy wounds take a lot of time to heal. While those who went bankrupt were able to get a job and a car more quickly than their peers, they were also saddled with more car debt. The percentage of bankrupt respondents with car debt declines with time, but never reaches the lower 42% level of those who never filed.

Similarly, bankrupt respondents fared worse in terms of homeownership, savings and credit-card approvals, though rates improved over time, along with credit scores.

"On most measures, bankruptcy does set people back quite a bit," Zagorsky says.

The survey has been performed on the same group of 7,661 respondents more than 20 times since 1979. However, Zagorsky also notes that these most recent results are based on a survey performed before the 2005 bankruptcy laws were put into effect, and may actually mute the negative effects.

Those grappling with high costs and excessive debt should seek out other options first -- whether restructuring or consolidating debt, negotiating a payment plan or lower interest rates with creditors, selling off assets or simply cutting back on costs -- before putting a 20-year "scarlet letter" on their credit scores.

The Federal Trade Commission offers some tips for consumers who are "knee-deep in debt." The Justice Department also has a list of approved credit-counseling agencies that can offer advice on how to repair your financial position without succumbing to bankruptcy.