What Is It Like To Go Bankrupt?

There’s no question that bankruptcy isn’t the most desirable situation to be confronting. There are some serious financial penalties involved and it’s a very demanding and stressful process that will affect you financially for several years to come. Ending up in mountains of debt can come about in the blink of an eye, and many individuals end up in this situation due to a multitude of factors. Not being able to work resulting from illness is one of the most common reasons why people file for bankruptcy. It’s not as if they had any control over the circumstances, but being unable to repay their debts considering that they have no income is the hard reality they have to face. In reality, 7,900 people in Australia declared bankruptcy in the March 2017 quarter1, so it’s not as uncommon as some people may think. If you ask me, I think that bankruptcy is neither good nor bad. Of course, those who file for bankruptcy have made some poor financial decisions and will penalised appropriately, however declaring bankruptcy is also the first step to financial freedom. Lots of individuals struggle for years just to make ends meet, while their debts keep compounding, so in a lot of cases, bankruptcy is a chance for a clean slate for those individuals that are unable to repay their debts.

 

Even though I’ve never been bankrupt personally, I’ve witnessed the journey of lots of individuals who have and surprisingly, the majority of people are better off and glad they went through the process. If you’re enduring financial problems and contemplating bankruptcy, this blog will explain what life is like after you declare bankruptcy.

 

You Won’t Be Debt Free By Declaring Bankruptcy

 

Bankruptcy is relatively complicated, and there is a general misconception that all debts are cleared by declaring bankruptcy. This is definitely not the case. There are several debts that won’t be eliminated, for example Centrelink debts, HECS debts, child support, court imposed fines (for example speeding tickets), and also money that is owed to an insurance company resulting from a car accident where you were uninsured and in the wrong. But, filing for bankruptcy will remove debts such as credit cards, GST and tax, and unsecured personal loans. The fact is, you will still have debts to pay after you declare bankruptcy, but the most substantial debts in many cases, such as credit cards, will be eliminated.

 

Feelings Of Remorse And Shame Are Standard

 

Bankruptcy is an arduous process and lots of people who declare bankruptcy have feelings of remorse and embarrassment; as if they’ve lost in life. This is quite standard, however it’s critical to overcome these emotions because the reality is, humans make errors, and bankruptcy is a way that you can go back to square one financially and get your life back on track. The sooner you recover from these feelings of guilt, the sooner you’ll be able to start the recovery process and develop a plan of how you’re going to repay your remaining debts and rebuild your credit rating. Always remember, bankruptcy lasts for three years and after seven years, it will no longer appear on your credit report, so it’s certainly not the end of the world.

 

You Can’t Borrow Any Money For Three Years

 

Unfortunately, by declaring bankruptcy you won’t be able to borrow any money under any circumstances for three years. During this time, it’s essential that you start rebuilding your credit report by maintaining a stable income and paying your bills and remaining debts on time. It’s simple but effective. After this three-year process, you become a discharged bankrupt and will have the opportunity to obtain loans for secured assets like houses and cars, but your interest rates will be much higher because of your poor credit history. Although it’s not always appropriate to secure loans straight away, it is possible. After seven years from the time you became bankrupt, your credit rating will be clean, and you will have the option to obtain all sorts of loans again at competitive rates.

 

Life after declaring bankruptcy obviously isn’t easy, but the emotional relief that most people experience after starting the process definitely softens the blow. There are some major financial consequences involved, but filing for bankruptcy is the first step towards financial freedom and securing a bright future for you and your family. If you’re confronting financial problems, it’s always best to seek professional advice sooner rather than later. Whatever you do, don’t keep struggling financially for years because you’re afraid of the stigma associated with bankruptcy. It’s difficult, but it’s also not the end of the world. If you ‘d like to talk to someone about your financial condition, get in contact with Bankruptcy Australia on 1300 795 575 for a confidential discussion, or alternatively visit their website for more information: www.bankruptcy-australia.net.au

 

Sources:

 

https://www.afsa.gov.au/statistics/personal-insolvency-statistics-0