Bankruptcy is a legal way to start fresh if you become unable to repay your debts. Basically, if you enter into bankruptcy you will give up your assets and control of your finances. It will release you from most debts, but there may still be some you must repay. There can be some advantages to filing for bankruptcy, but you should also note the disadvantages.
The trustee
A trustee can either be appointed to you to manage the bankruptcy or you can nominate your own. They will hep you sell assets, notify debtors and advise on what you should do throughout the whole process. During the 3 years of your bankruptcy, you have to provide a few things.
- Provide details of all debts, assets and income to your trustee.
- The trustee will notify creditors that you are bankrupt so they stop chasing you for money.
- If you need to sell anything to help repay some debts your trustee will help you with this.
- If your income is over a certain amount, you may be required to still make some repayments.
Before applying
Some of the biggest disadvantages to applying for bankruptcy are listed below.
- It could hinder your ability to get a job later on and run your own business again.
- It can affect your ability to travel overseas freely. You will need written consent from your trustee during this time.
- Your name will appear permanently on the National Personal Insolvency Index.
- Your credit score will be greatly affected. You will need to inform the credit provider of your previous bankruptcy.
- Credit providers keep this record in their system 5 years from the date of bankruptcy, or 2 years after bankruptcy ends. (Whichever is later).
The only upside is that possibility of having all your debts wiped. But considering the long list of downsides, it is recommended to do whatever you can to avoid it.
Other options
Many other options are often not as well known for business owners. This can include simple solutions like making an arrangement with creditors for a sort of repayment plan. There is also a 21 say relief program, which is a more formal alternative. Speaking to a bankruptcy lawyer can help narrow this down for you, and they can help minimise your debts.
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If you don’t voluntarily apply for bankruptcy, a creditor could force you into bankruptcy. This is why it is advised to speak to them first to try to come to an agreement. This can avoid hostility, and can help keep you in the game until the tides turn in your favour.
How long does it last?
Usually this will last for 3 years and 1 day from the day your application is accepted. However, your trustee can lodge a claim to extend your bankruptcy under some circumstances.
- If you fail to provide any information to your trustee.
- If you’ve failed to provide all income details.
- Failing to make the compulsory payments.
- You are not able to explain how you spent money.
- If you are unable to reveals all assets and debts.
If your trustee has requested for an extension, you are also able to request for a review of this claim.
Conclusion
Overall, entering into bankruptcy is not a positive thing. Your debts can be wiped and it is a chance for you to start anew, but the disadvantages are numerous. If you are able to avoid this, that would be ideal. However, for many people this is the only option unfortunately. That certainly doesn’t mean the end of the world though. Many people make a come back, learning from their mistakes from the bankruptcy. Not to mention there are many resources available to help you.
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