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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.
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