The Consequences of Bankruptcy

06 Oct 2018 | |

If you can not pay off your debts, bankruptcy can be the last resort which can not only afford protection but also help you wipe the slate clean and start everything from scratch. When you are overwhelmed with debts, you can relieve a lot of financial stress by declaring bankruptcy.

Once you have declared bankruptcy, a registered trustee will investigate your financial affairs and if possible, pay dividends to your creditors.

As a rule of thumb, bankruptcy lasts three years and one day. The time starts when the statement of affairs is filed. The period can be extended if your trustee wants. A person can also be declared bankrupt indefinitely if he or she can not lodge the statement of affairs.

You get some protection

Once you have declared bankruptcy, most of your creditors will no longer pursue you. You will feel some peace of mind because you will no longer be burdened with overwhelmed debts. However, some debts will still be there and you will still be liable. But overall, bankruptcy will release you from a lot of financial burdens.

You will continue to be liable to pay some debts. Examples include fines and penalties imposed by the court, part of your student loans and any debts which you incurred by fraud.

Your assets

A bankrupt person has a trustee who takes control over the divisible assets, but there are some rules and limitations. The trustee will gather money from your assets and try to settle your debts. Divisible assets include money, property, shares, vehicles and jewellery.

But your trustee can not gather money from your protected assets. These assets include your clothing and furniture, life insurance policies, and some other funds.

Does bankruptcy affect your earning?

Many people have a misconception that you can not earn enough when you are bankrupt. But the fact is, a bankrupt person can earn according to his earning capacity. But there is a condition: once you start earning over the threshold, you must pay a portion of your income to the trustee. To get the right information regarding bankruptcy it is important that you seek help from a professional company such who offer bankruptcy assistance and provide advice as to what happens when you file for bankruptcy.

After conducting an annual assessment of your income, your trustee will figure out how much you need to pay to the estate.

Your credit score

When you file for bankruptcy, your credit score will usually go low. Many people filing for bankruptcy are scared of this change. After the bankruptcy, you can rebuild the score slowly. With your effort, your score can reach a point higher than it was before the bankruptcy. Your credit report will show the bankruptcy for many years, but the overall effect can be positive in the long run.

Your privacy

One of the most uncomfortable things about bankruptcy is that when you file for bankruptcy, public can access your bankruptcy schedules and other financial information. But here is a simple reason why you don’t need to worry. Apart from your creditors, other people will probably not access the information.

Bankruptcy provides you with great benefits but you have to give a price by sacrificing your privacy. For some people, this lack of privacy is terrifying. But for most people filing for bankruptcy, the benefits provided by bankruptcy far outweigh the privacy factor.

But information that is very sensitive is always protected. Such information includes your taxpayer identification number and your financial number.

Your ability to travel overseas

Once you have declared bankruptcy, you will need to request permission from your trustee before you travel overseas. You have to provide a written consent before you travel overseas. When your trustee considers your request, you may be asked to provide further details. You may need to provide important information such as where you got the money to travel and why you are traveling overseas.