There’s something about the word ‘bankruptcy‘ which sets alarm bells ringing. Perhaps it is the abruptness of the word itself. Maybe it is its association with financial catastrophe and ruin. Whatever the reason, bankruptcy is not something we want to experience.
But bankruptcy does not spell disaster. In some cases, bankruptcy can be the best option and can have positive outcomes for all concerned, as you begin to fix your credit score and rebuild your finances. To better understand this, we first need to understand what bankruptcy is exactly, and how long it lasts.
Basically, bankruptcy is the legal process that takes place when an individual or business can no longer meet payments towards their debts keep on top of their debts. For example, if you or your business goes bankrupt, control of your assets is handed over to a legally appointed third party. You are then protected from any legal action, while the third party works to get money back for your creditors. It’s not an ideal situation, but it is a positive one for both parties.
So, in some cases, bankruptcy may be necessary – or at least unavoidable. But how long does it last?
This depends on the phase of bankruptcy you are in, and on your own personal circumstances. Let’s take a look at this in more detail.
When we talk about bankruptcy, usually we are referring to undischarged bankruptcy. This is the most restrictive phase of bankruptcy, and you will be unable to take up public or private office or become a company director or a member of any legislative body. You also won’t be able to extend credit beyond any previously stated limits.
This might seem a little unfair, but the measures are in place to stop you from making your own situation worse. In fact, the restrictions make it easier for you to rebuild your finances, improve your credit score, and get yourself out of bankruptcy.
This period of bankruptcy lasts for three years and one day after the date at which the individual was made bankrupt.
Next comes the discharged bankruptcy phase. At the completion of the 3 years and 1 day, you may become a discharged Bankrupt. As long as certain improvements have been made to your finances, and your creditors’ needs are being met, restrictions will be lifted.
You will still be considered bankrupt, but you will be able to take up office or extend your credit in a normal way. You remain as an undischarged Bankrupt for a period of 2 years.
This period may last for a further two years after the discharge has been granted.
But what happens if conditions are not met, and the phase of undischarged bankruptcy is complete? In some cases the registered trustee may extend your Bankruptcy. A registered trustee will not take this decision lightly and will consider all factors that led to the reason for the potential extension of Bankruptcy.
In these cases, you may be able to apply for extended bankruptcy.
Extended bankruptcy occurs if protection is still required from legal action, or if more time is needed for you to get everything in order.
Extensions are available up to a maximum of eight years in total.
Of course, a period of bankruptcy is not set in stone. The aim of bankruptcy is to stabilise your finances and get money back for your creditors. If this happens ahead of time – if you receive a sudden windfall and can pay off your debts in full, for example – the bankruptcy may be annulled.
There may also be other circumstances – such as, a Debt Agreement or other binding credit repair plan – in which an annulment may be granted.
Bankruptcy is not the ‘point of no return’ that many assume it to be. It will only last for a short period of time, and can lead to you improving your financial ability.
However, it is important to remember that your time spent in bankruptcy will be recorded publically. This will remain on your permanent record indefinitely.
For more information on how to fix your credit score and on debt relief, or to learn more about bankruptcy in general, get in touch with our team today.