Learn How Bankruptcy Works
In this current financial climate, a lot more people are starting to rely on bankruptcy as a solution for dealing with debt. However, it is important to appreciate that this significant step is only truly effective in certain circumstances. If used inappropriately, bankruptcy is likely to cause a lot more issues than it is actually able to solve.
Benefits of applying for bankruptcy
- Puts a limit on the number of years in which you will be repaying the debt
- Offers legal protection from creditors in regards to the debt
Negatives of applying for bankruptcy
- You are giving complete control of your finances to the court
- If you are a property owner with a significant amount of equity, there is a high chance that you will need to gain access to the equity, which is likely to mean the property would need to be sold
- It isn’t possible to work in certain public offices or work as a director of a limited company for the duration that you are bankrupt.
- It can be very difficult to get access to any form of credit until you are fully discharged from the bankruptcy proceedings. If able to get any credit, you’ll likely find that the interest rates are more on the high side.
- Certain debts aren’t likely to form part of the bankruptcy proceedings. These might relate to student loans, magistrate court fines, secured debts, and the mortgage.
- It will be necessary to arrange for a basic bank account to be opened in place of the more full featured account that you might already have in place.
- A bankruptcy isn’t likely to be a private matter since it can be published in the local press.
- A fee for applying for bankruptcy is applicable
When might bankruptcy be the most beneficial option?
If you are in a position of facing a significant debt issue, with minimal assets, and very limited chance of being able to pay back the debt then it might be necessary to look at bankruptcy.
However, you might notice that bankruptcy is likely to have a negative impact if you don’t fully understand the proceedings and the restrictions that will be placed for the future. Bankruptcy isn’t desirable if you have a significant amount of equity in the home, which could force you to sell the property. Also, you might want to consider that a bankruptcy could have a negative impact on any future business relationships.