If you find yourself in a dire financial situation, and have explored numerous options without finding the proverbial light at the end of the tunnel, you might be considering bankruptcy.
To have reached this stage, it is likely you have already taken the time to assess your debts and might even have spoken to a debt counsellor, or have considered some form of debt management program such as hardship.
While filing for bankruptcy is an option ensure you understand the consequences and consider seeking legal and financial advice before you embark on this course. More information on the consequences of bankruptcy can also be found on the Australian Financial Services Authority website at www.afsa.gov.au.
One of the most important considerations when thinking about bankruptcy is its impact on your ability to successfully apply for credit in the coming years. If you become bankrupt, this will be registered on your credit file, and you will certainly see your credit score suffer as a result. If you’re at the point where you are considering bankruptcy, then your a credit rating is likely to be in a bad shape, but becoming bankrupt could add another layer of difficulty for you moving forward.
If you become bankrupt, you will be bankrupt for at least three years in accordance with Australian bankruptcy law. You may be discharged from your bankruptcy after this three-year period, so long as you have remained co-operative with your registered trustee during this time. If there have been any issues regarding your co-operation then you could remain bankrupt for as long as eight years. Following release, your name will appear on the National Personal Insolvency Index as a discharged bankrupt and on credit reporting agencies’ records for three years from the date of discharge or up to five years from the date of your bankruptcy, whichever is later.
Any plans you may have to buy a house, or make another large scale purchase with the help of a personal loan or credit facility in the future, are likely to be impacted as a result of becoming bankrupt. You’ll also need to factor in the time following your discharge from bankruptcy where you will need to build up your credit score again. In addition, even getting credit acceptance for small purchases such as a fridge freezer may become difficult after bankruptcy, and some mobile phone providers will also decline contracts.
Some people see bankruptcy as a way out of financial strife and emotional stress. While in some respects, this may be accurate, in reality it could be the start of more emotional strain. There are several steps you will need to go through prior to being declared bankrupt, including instructing a registered trustee and completing all of the necessary legal paperwork.
You may also have further stress if any of your creditors contest the bankruptcy.
After you have been declared bankrupt, you may also find it emotionally stressful to service the bankruptcy each month, and if your home or car are sold as a means of servicing the bankruptcy and repaying your creditors, this can become even more distressing.
Although bankruptcy may seem like a good idea now, the last thing you want is to be looking back in a few years’ time and wishing you had chosen a different path. Bankruptcy is not something that should be entered into lightly.
Ultimately, whether filing for bankruptcy is the right thing to do will depend on your personal circumstances and individual financial situation. By speaking with a debt counsellor or even a registered trustee prior to making a decision, you may find you are better informed and could even come out with some additional options for dealing with your financial affairs rather than becoming bankrupt.
Remember that becoming bankrupt is likely to have long-term consequences on your eligibility for credit, even if you feel it is the right thing to do in the short-term, and may cause additional emotional strain despite seeming like a useful solution at this time.
Please seek independent legal advice for specific cases. This article is for general information only.
Disclaimer: This article contains general comments and recommendations only. It is not intended to be and should not be construed as legal advice. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action, you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.
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