If you find yourself struggling with mounting debts and bills that you can’t pay, the prospect of ridding yourself of debt by declaring bankruptcy may seem appealing. For some individuals, it does provide a fresh start where there are no other options.
Bankruptcy is a legal process that releases a person from almost all of their debts. Bankruptcy lasts for three years from the day it is declared, and a trustee is appointed to manage the case.
But before you head down that path, take a moment to consider these seven important reasons why you might not want to file for bankruptcy.
1. It will hurt your credit rating, now and in the future
Your bankruptcy will appear on your credit rating for five years from the date of filing or two years from when your bankruptcy ends (whichever is later). You’ll find that it is difficult to obtain credit for five years. Your Name will remain on the NPII on a permanent basis.
2. You will lose some of your possessions
While you will be able to keep household goods and personal possessions such as a television, computer and furniture, you may lose assets. These include real estate (houses and land), cars over a certain value, antiques, luxury electronic items, artworks, inheritance, tax refunds or winnings, and money in your bank accounts.
3. You will lose your credit cards
This may be a good thing, if credit debt brought you to bankruptcy in the first place. However, it’s an important consideration which may affect you down the track.
4. It won’t clear all of your debts
Bankruptcy doesn’t cover all debts, so depending on the type of debt you are in, bankruptcy may not be a solution. You would still be liable for child support and maintenance, HECS and HELP debts, court-imposed penalties, or any debts you incur after your bankruptcy begins. They also may not cover Centrelink and ATO debts, nor toll fines.
5. Your trustee will gain access to personal information
Your trustee will have access to your personal bank accounts to ensure that you are disclosing all income to your trustee. In some instances the trustee may place a block on your bank account.
6. Your ability to travel will be limited
For the duration of your bankruptcy, you must request permission from your trustee to travel overseas.
7. Your future employment may be affected
During the term of your employment, depending on how much you earn, you may be required to make contributions to your trustee, to go towards your creditors. You will have an obligation to report any changes in your income or employment.
Some professional bodies and/or trade associations have certain conditions of membership, both during and after a bankruptcy. You would need to contact your relevant peak body to see what these may be in your profession or trade.
Bankruptcy may be the only viable option, but there are clear consequences that can continue to affect you even after the bankruptcy has ended. It’s a good idea to explore all of the available debt solutions so that you can make the best decision for your situation.