Bankruptcy is not what you might think

By Pamela Wardle, Legal Practitioner Director

There appears to be a misconception in general that if a person cannot pay their debts that they will simply declare bankruptcy so they will not have to worry about the bills anymore.  Unfortunately, this is far from reality.

The first thing to consider is where a bankruptcy is recorded.  A permanent notation of bankruptcy will be entered on the National Personal Insolvency Index and there is also a notation with credit reporting agencies for a period of time.  These records can have significant effects on any future credit contracts such as applying for a home loan or even rental contracts for electronic goods.

Next, consider the effect on non-cash assets and future income.  During the bankruptcy period (usually three years but may be five or eight years) a trustee will be appointed to manage assets and debts and the trustee may, among other things:

1.       sell assets to pay debts;

2.       recover income earned over a specified limit;

3.       recover property transferred to someone else; or

4.       deal with property acquired during a bankruptcy (eg from the death of a loved one).

Also, a bankrupt person cannot keep tools or equity in a motor vehicle with a value over a specified limit.

Finally, consider the effect of bankruptcy on careers and personal obligations.  A bankrupt person may not be able to practice in some professions at all or may be restricted from holding a trust account in other professions.  A bankrupt person cannot be a director of a company, a trustee of a trust, an attorney or an executor under a Will.

If you are having difficulties paying your debts, we can refer you to the relevant people who may guide you through your options and obligations.