For most people, bankruptcy is a confusing subject especially because most businesses known to have declared bankruptcy have continued running their businesses as usual. The same is true for individuals who have found themselves in the same situation. One of the main reasons people don't understand the concept of bankruptcy is because for a lot of people, it is considered the end of the road while this is not the case. Bankruptcy does happen but life does go on. So, what exactly happens when you file for bankruptcy?
After you are declared bankrupt, your assets will be put under the charge of a trustee which means that you will need to ask someone else before making any transaction. Having said this, you will be allowed basic living expenses during your bankruptcy and the remaining money will be used to pay off your creditors. The trustee works with you and your creditors to find a rational outcome for everyone involved.
It is important to note that bankruptcy may very well affect your income, employment and business. This is because if you earn over a certain amount, you will be required to make compulsory payments. You may also face some restrictions when it comes to running your business because like I said before, you need to seek your trustee's advice before you spend any money.
If you don't know how to apply for bankruptcy or what is involved when you declare or claim bankruptcy then you can find more information here. If you understand the process then you should also know that when you apply for bankruptcy you have the choice of nominating a registered trustee of your choice. If this does not happen, a trustee is assigned to your case usually from the Australian Financial Security Authority. Most people prefer working with a trustee of their choice as they already have a working relationship, maybe even personal.
Another important thing to note is that bankruptcy does not clear you from all your debts. Most unsecured debts (such as credit and store cards, unsecured personal loans, utility bills, medical/legal/accountancy bills among others) are covered. However, bankruptcy does not cover court mandated fines and penalties, child support, educational loans and unliquidated debts.
You may be wondering, apart from your income, which other area of your life is going to be affected when you declare bankruptcy?
Well, for starters, bankruptcy affects your ability to travel overseas at will. Just as you have to consult with your trustee before making any transactions, you also have to submit a request to your trustee before you travel overseas since it is an offence to travel overseas without written consent when you are bankrupt.
Another thing is that your name will appear on the National Personal Insolvency Index which is available to the public. Therefore, anyone including your future employers can access this information. Thirdly, bankruptcy will affect your ability to obtain future credit since you have to disclose your bankruptcy to your credit provider when you make the application. I get it, this can all be pretty confusing. If you are going bankrupt and need some help or advice on the process of bankruptcy then click here. Using a service is definitely the way to go to help getting you back on your feet.
Finally, your trustee may have to sell your assets to cover your debt. Usually, declaration of assets is one of the first things to happen when you declare bankruptcy. This way, a trustee will be able to advice you on which assets you will have to offload to reduce your debt.
Like a broken arm, bankruptcy is financially painful however, depending on how severe the situation is, you could be discharged in as short a period as a year and be free to go on with life and business as usual.