By Stacks / The Law firm
Bankruptcy is booming as the harsh effects of the global financial crisis and mounting credit card debt hit hard. For many, the reasons for going bankrupt are real and genuine such as losing a job, family circumstances or being injured and unable to pay debts. But for some, declaring yourself bankrupt is seen as a quick and easy way to avoid paying debts. Some paint it glowingly as a new beginning.
A warning - it isn't as simple as that.
Many people are not aware of the legal problems that can come with bankruptcy. Can your assets be seized? What about your family's assets? What about the assets of people who are guarantors of your loan? Guarantors are often parents and they could face losing their own assets such as their home.
It's relatively simple to declare yourself bankrupt. You can be declared bankrupt over debts as low as $5,000 if you can't pay them. A person may be declared bankrupt voluntarily, by lodging an application or by an order of the court.
A Trustee is appointed to the person who is bankrupt for three years or more. The Trustee (usually an accountant) takes control of their estate and liquidates the assets to distribute the money equally among the secured creditors. Once declared bankrupt your creditors and debt collectors must cease trying to collect debts from you.
Going bankrupt doesn't mean you lose everything. Get legal advice before you take this step as it may be possible to keep your home, superannuation, life insurance and other personal property such as a car worth less than $7000, work tools, household items and clothes.
Most debts are cleared when you are discharged from bankruptcy. But you will have to eventually pay court fines, child support, student loans and debts incurred by fraud.
However there are long-term consequences. Your bankruptcy is recorded on your credit record for seven years and is permanently publicly available on the National Personal Insolvency Index. This could cause problems with your credit rating and borrowing money in the future. You may not be able to continue working is some professions. Bankrupts trading under another name must disclose they are bankrupt to everyone they deal with.
Creditors, those who are owed money, should also get legal advice on what they can do to try and get their money back from a bankrupt. Secured creditors such as banks and councils get paid first by the Trustee. The rest often miss out. Get advice before you act. There are alternatives to bankruptcy such as a debt agreement that may improve your chances of getting your money back.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
