When you declare bankruptcy, you legally acknowledge you are unable to repay your debts. A trustee is appointed to take control of your assets and income, which they use to pay off your creditors. You lose control of your assets during this process, and certain assets may be sold by the trustee to satisfy debts. Bankruptcy generally protects you from further legal actions by creditors and lasts for a set period (e.g., three years and one day in Australia). However, it has significant consequences, such as damage to your credit rating, limitations on owning property or being a company director, and certain restrictions on your financial activities. Your bankruptcy record may remain publicly accessible for years after discharge.
What Happens During Bankruptcy
- A trustee manages your income and assets, potentially selling property to pay creditors.
- You must disclose all assets and income to the trustee.
- Certain basic household items and tools used for earning income may be exempt.
- Your name appears on official insolvency registers and credit reports, affecting your creditworthiness.
Types of Bankruptcy (US Specific Examples)
- Chapter 7: Assets are liquidated to pay debts, then remaining eligible debts are discharged, usually within 4-6 months.
- Chapter 13: Debt repayment reorganization over 3-5 years, keeping assets but repaying debts gradually.
Consequences of Bankruptcy
- Loss of control over properties and other assets.
- Damage to credit rating for 5-10 years, depending on the jurisdiction.
- Restriction from roles like company director or trust account administrator.
- Public record of bankruptcy affecting future credit and financial dealings.
- Possible restrictions or loss of passport and other legal impacts.
After Bankruptcy
- Bankruptcy is discharged after a set period or plan completion.
- Some debts such as fraud-related debts, student loans, fines, and maintenance payments are usually not discharged.
- Credit can gradually be rebuilt over time with responsible financial behavior after bankruptcy.
This summary covers the general outcomes and consequences of declaring bankruptcy, highlighting the loss of assets control, legal protections from creditors, and long-term credit impact.
