What is Bankruptcy?
Bankruptcy is a legal process by which an individual declares themselves unable to pay their debts. The process can be initiated voluntarily (by the financially distressed individual) or by a court application (made by creditors). A bankruptcy period is generally 3 years and 1 day, during which a trustee takes control of the bankrupt estate, sells certain assets, and makes distributions to creditors. When the period ends, the bankrupt is discharged from their debt. For many people, bankruptcy is an avenue towards a fresh start.
Does filing for bankruptcy clear all my debt?
Bankruptcy is not a ‘fix-all’ solution to every debt problem. It will only discharge an individual from unsecured debts, such as:
- Personal loans
- Unpaid rent
- Tax debt
- Overdrawn bank accounts
- Credit card debt
Will filing for bankruptcy clear my credit card debt?
Credit card debt is unsecured debt, usually discharged during bankruptcy. However, there are some important things to know before filing for bankruptcy for credit card debt.
What are some of the consequences of filing for bankruptcy for credit card debt?
There are several consequences that can arise from such action. Some include:
- A credit report will disclose your bankruptcy to potential lenders 5 years from the date of bankruptcy.
- A record of a bankrupt’s insolvency incident will be recorded on the National Personal Insolvency Index (a searchable register).
- Restrictions on certain professions also apply. See www.afsa.com
For some individuals, jeopardising future lending capacity will be unappealing, as may the prospect of a permanent record on a searchable register or barriers to certain careers. For others, these factors will be of little importance, and filing for bankruptcy for credit card debt will be an appropriate and strategic choice.
Individuals should seek personalised financial advice to better understand their unique circumstances and the potential consequences of such actions. Feel free to call us on +61 2 9251 5222 for an obligation-free discussion on your avenues towards financial recovery.
You do not need to undergo this challenge alone.