Declaring bankruptcy should be your last resort when you are faced with financial difficulties, whether as an individual or as a business owner. It is not exactly a “Get Out of Jail Free” card, as it comes with many adverse consequences, which may significantly impact your financial standing over a considerable period. So what consequences can you expect when going bankrupt?
Bankruptcy prevents your creditors from recovering the money they loaned you
When you file for bankruptcy, your creditors will no longer be able to continue recovering the money you owe them. Instead, they will receive distributions, which will come in the form of dividends, from your trustee.
Bankruptcy can result in your properties being sold
Your trustee may opt to sell your properties, which may include your home. While you may be allowed to keep vehicles and tools that you use to earn income, along with ordinary household items (up to a certain value), you will be prohibited from concealing, removing, or disposing any property, whether outside of or within Australia.
Declaring bankruptcy may affect your business, employment, or income
You may be obliged to make contributions from your income if it exceeds a certain limit. Bankruptcy also prohibits you from managing a company or acting as its director. Likewise, it may result in some licensing or professional organizations restricting you from practicing in the corresponding profession or trade.
Declaring bankruptcy may not release you from all debts
While declaring bankruptcy releases you from most unsecured debts–such as those from store cards, personal loans, and credit cards—after you get discharged from it, there are some debts that you will still need to pay for and that are not covered by the bankruptcy. These include debts from child support, fines, or penalties. Moreover, if a debt included in the bankruptcy is determined to have come from fraud, then you will still have to pay the remaining balance after you get discharged from it.
Also note that you may not be able to travel outside the country without written permission from your trustee. You may also be required to give your passport to him or her.
Declaring bankruptcy will have your name listed on the National Personal Insolvency Index (NPII)
In addition to your name being listed on the public register NPII, credit reporting organizations will also keep your bankruptcy on record for up to five years or more.
Declaring bankruptcy may prevent you from obtaining credit
Filing for bankruptcy may prevent you from making purchases on credit. You may also be asked to pay a bond for the connection of your telephone, water, or electric services. As well, some banks may restrict you from opening an account or with the way you use it.
Going Bankrupt? Consult a Bankruptcy Lawyer
If you know you’re on the verge of going bankrupt, then you may want to consider alternatives, such as a notice of intention to declare a debtor’s petition, an informal agreement, or a debt agreement.
A notice of intention to declare a debtor’s petition freezes any action against your debt and gives you 21 days to seek advice from a bankruptcy lawyer, as well as to make agreements with your creditors.
Although not legally binding, an informal agreement with your creditors enables you to repay some debts over a certain period.
On the other hand, you can also consider a Part IX Debt Agreement, which is a legally binding agreement between you and your creditors.
With the many negative implications that come with declaring bankruptcy, you should explore your options by consulting a bankruptcy lawyer.
Need legal advice? Visit https://www.sajenlegal.com.au or call 1800 640 509 for more information.
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