What Impact Can it Have on Your Day-to-Day Life?
Are you considering bankruptcy or facing it? If you are, you likely have some questions about what it involves and how it will affect you.
While bankruptcy can provide relief from overwhelming debt and the mental and emotional turmoil that goes with it, it can also have far-reaching consequences that can negatively impact your day-to-day life.
Here we look at the process and the negative consequences of bankruptcy. We also provide insights on how to manage them and rebuild your financial and personal life after going through the process.
What Does the Bankruptcy Process Involve?
Bankruptcy is a legal process that involves surrendering your assets to pay off your debts. It typically lasts three years and one day and involves the following steps:
- Filing for bankruptcy - You can file for bankruptcy voluntarily by submitting a debtor's petition to the AFSA. Alternatively, a creditor can initiate bankruptcy proceedings against you by filing a creditor's petition.
- Appointment of a trustee - Once bankruptcy is declared, a trustee is appointed to manage your affairs. The trustee's role is to assess your assets, manage the sale of assets to repay creditors and distribute funds to them.
- Asset sale - In most cases, the trustee will sell your assets to pay off creditors. Certain assets, such as tools of the trade, household goods, and motor vehicles, may be exempt from sale.
- Income contribution - You may also be required to make income contributions to repay creditors. The amount of income contribution is based on your income and expenses.
- Discharge - You can be discharged from bankruptcy after a certain period, typically three years and one day. Once discharged, you’re released from most debts and can start rebuilding your financial life.
The Consequences of Bankruptcy
Bankruptcy can significantly impact your financial, personal, and professional life. Here are some ways it can negatively affect you:
- Financial restrictions - If you’re declared bankrupt, you’ll have restrictions placed on your financial activities. For example, you may be unable to borrow money or obtain credit without permission from the trustee.
- Assets sold - In most cases, the trustee will sell your assets to repay your creditors. This can include your family home, car, and other personal possessions. However, your trustee will balance their duty to recover money for creditors with their duty to protect your basic necessities.
- Employment affected - If declared bankrupt, you may be unable to work in certain professions. These professions include accountants, solicitors, builders, company directors/managers, defence and real estate. See the AFSA website for more detailed information.
- Travel restrictions - If you’re declared bankrupt, you may have restrictions on international travel. The trustee may need to give permission for you to leave the country, which includes an application fee, even if it’s for a work trip. You can still travel within Australia.
- Credit score - Bankruptcy harms your credit score, and it can take years for it to recover even after your bankruptcy has been discharged. Credit agencies typically keep bankruptcy on your credit file for five years from the date you become bankrupt or two years from when it ends (whichever is longer).
- Personal relationships - Bankruptcy can be a stressful experience and may put a strain on personal relationships with family and friends.
How to Manage and Minimise The Impact
Managing the consequences of bankruptcy can be challenging. However, the good news is there are several steps you can take to help ease the impact:
- Seek professional advice - It's important to seek professional advice from a licensed financial advisor or bankruptcy trustee. They can provide you with information on the bankruptcy process, help you understand the implications of bankruptcy, and offer guidance on managing the consequences.
- Create a budget - Creating a budget enables you to manage your finances effectively after bankruptcy. It can help you prioritise your expenses, identify areas where you can save money, and ensure you have enough to cover your basic needs. Check out our handy budgeting calculator.
- Rebuild your credit - While bankruptcy will have a negative impact on your credit score, there are steps you can take to rebuild your credit. This includes paying your bills on time, applying for a secured credit card, and monitoring your credit report regularly.
- Focus on your career - Because bankruptcy can have implications on your employment prospects, it's important to focus on building your career. Consider upgrading your skills, networking with professionals in your industry, and seeking new job opportunities.
- Maintain healthy relationships - It’s important to maintain healthy relationships with family and friends. Seek support from loved ones, communicate openly about your situation, and engage in counselling if necessary.
By taking these steps, you can manage the consequences of bankruptcy and rebuild your financial and personal life.
It's important to note that the impact of bankruptcy can vary depending on your circumstances, so seeking professional advice and support is crucial.
It’s Not All Negative in Bankruptcy
While the consequences of bankruptcy on your day-to-day life are significant, it’s possible to reduce the impact. The pros can also outweigh the cons.
If you’re in a situation where improving your finances just isn’t possible, bankruptcy can free you from your debt, protect you from creditors, provide access to financial support, alleviate the mental strain and set you on a path to recovery.
Just make sure you’ve investigated all of your other options first.
If you’re experiencing financial problems, considering bankruptcy or facing bankruptcy, get in touch with our team of specialists today on 1800 534 534 for support, advice and to discuss your options.