Monday 22 July 2013

What Happens When You Are Bankrupt?

What Happens When You Are Bankrupt?

Bankruptcy has a strong social stigma but has been terribly misunderstood for years.

The problem is that the people who have actually been through Bankruptcy are rarely the ones to talk about it. If you are considering Bankruptcy, it will help you to have a good understanding of exactly what happens, minus the scaremongering of social pressures.

A Bankruptcy will wipe out your unsecured debts, meaning your credit cards and personal loans; anything that does not have an asset attached to it that could be sold if you did not pay.

It generally lasts for three years, during which time your unsecured debts are held in limbo, like being placed on a shelf. It is your Bankruptcy Trustee’s job to try to recover whatever money they can from you during those three years, which is then put towards your debts and the associated costs of your Bankruptcy.

At the end of your Bankruptcy period, any remaining debt gets wiped out, and you are no longer legally liable for those debts.

The most common misconceptions about Bankruptcy revolve around the Trustee’s obligation to recover whatever available funds they can. Most people think that they “will lose everything”, but this is far removed from the truth.

Firstly, the laws that govern Bankruptcy insist that a Bankrupt person still be able to maintain a comfortable standard of living. And secondly, not all funds are actually available or worthwhile to be recovered.

There are two main ways in which a Bankruptcy Trustee can recover money to be put towards your Bankrupt estate, the first of them being through the sale of assets.

If you have a home with available equity in it, this will be sold. This also applies to other major assets you may have such as a car or a boat. If the asset is still subject to a loan, however, and the balance of the loan exceeds the value of the asset, there is no point in the Trustee selling it.

And when it comes to a vehicle, there is actually a certain amount of equity that you are allowed to have in it and still be able to keep it. If the available equity is over this amount, the vehicle would be sold and the allowed amount remitted to you so that you can purchase a less expensive vehicle.

If you are in possession of any valuable antiques or overly expensive household goods, these would be sold, but your general household goods of a reasonable value are protected.

The second main way in which a Bankruptcy Trustee can recover money from you is through your income. Many people are of the belief that you are “not allowed to earn any money” but again, this is untrue. You can earn as much as you are able to, but if you start to earn over a certain amount, you will be required to contribute a portion of that towards your Bankruptcy.

And if you come into possession of a windfall of funds during the three years of Bankruptcy, say from a lottery win or an inheritance, your Trustee will be obligated to apply those to your estate as well.

As you can see, the situation under Bankruptcy is not quite as dire as many people make out. You can still earn a living, you can keep your household goods, and you can still own a reasonably priced vehicle. Some people even go through Bankruptcy without noticing any ill effects at all.

The outcome is dependent on you and your own individual circumstances.

Bankruptcy is often misunderstood, surrounded by social stigma and misconceptions. However, it's essential to have a clear understanding of what happens during this process, free from scaremongering.

Bankruptcy typically lasts for three years, during which unsecured debts are wiped out, offering a fresh start. Contrary to common belief, individuals undergoing bankruptcy are still entitled to a comfortable standard of living.

Asset sale is one way a trustee may recover funds, including homes or vehicles with significant equity. However, reasonable household goods are usually protected.

Income contributions are another avenue for repayment, ensuring fairness based on individual circumstances. Windfalls during bankruptcy, such as lottery winnings, may also be applied to the estate.

Despite its challenges, bankruptcy doesn't necessarily entail losing everything or facing insurmountable hardship. Many individuals navigate bankruptcy without severe consequences, emphasizing the importance of understanding one's rights and obligations within the process.

Ultimately, the outcome of bankruptcy depends on individual circumstances and proactive engagement with the process.

  1. When you are going into bankrupt, there so many things that will happen to you, first is you don't have enough money to support your needs. In fact in affects all your daily doing in your lives.


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