Bankruptcy | Credit Repair | Bankruptcy Questions | Credit After Bankruptcy

We live in a credit based and driven society and so many people end up living well beyond their means. With a constant pressure to succeed, achieve and display the fruits of success through material consumer goods, many people get sucked into a vicious cycle of personal debt buying goods they can ill afford on credit and then incurring high interest rates.

More money is borrowed in an attempt to help pay off the original debt and slowly but surely the debtor’s income and liquid assets become absorbed in interest and loan repayments. In some worst case scenarios, debtors end up paying over a significant proportion of their income simply to cover the cost of the interest that is being charged on the loan rather than actually paying off the capital sum itself. In theory then, the debtor can become trapped in a perpetual cycle of endless repayment and debt with no real way of escape.

Bankruptcy is a legal process which is designed to help debtors to escape such a debt trap allowing the full value of certain debts to be entirely extinguished meaning that the debts cannot be pursued by creditors, and they are in effect written off. Bankruptcy is especially common for many new businesses, not because of poor business management or due to hostile market conditions but simply because the companies liabilities outstrip the actual earnings.

There is often a great deal of stigma associated and attached to personal bankruptcy as people who are so declared bankrupt are typically viewed as being financially irresponsible and careless with their finances. Often issues such as medical problems, divorces, bereavements and the like are major drains on a person’s assets and so care must be drawn to distinguish between debtors who become so indebted due to circumstances beyond their control and reckless debtors who are feckless with their money.

Another common misconception that surrounds personal bankruptcy is that it is some sort of magic solution for all of your financial woes. As touched upon briefly earlier within the article bankruptcy will only ever help quash certain types of debts and so even after a person has been declared bankrupt they may still be responsible for the payment of such debts. Some examples include court fines, and alimony or child support payments.

Personal bankruptcy is not an option that should be taken lightly because it will cause a serious amount of difficulty in the future for the bankruptee when they should happen to wish to apply for additional credit or loans. Whilst it would be a little unfair to say that bankruptcy is the kiss of death for subsequent loan applications, this is not too far from the truth as it is a major red flag for lending agencies. Lending agencies are looking for people who are careful and responsible with money and who will pose little risk and bankruptcy goes against just about everything the banks look for.

Be prepared for another kind of sacrifice: your own personal property. Bankruptcy is a legal process and so the law demands that the applicant makes some attempt of payment to creditors which means that all of the assets of the debtor (with some limited exceptions) gathered in by a bankruptcy official and then sold off to settle the creditors. The chances of such property being returned is somewhere between slim and nil as the bankruptcy officials are more concerned with a speedy sale of assets than getting full value for them.

Bankruptcy is a complicated and arduous process and so will require consultation with a qualified insolvency practitioner so as to ensure the best possible way forward. These people do not typically do such work pro bono and so these fees will also be deducted from the net value of the assets sold off.

Bankruptcy then should only be typically be used where the debts have reached such a level that they cannot be reasonably paid off in the time frame in which they are required although the long term effects of bankruptcy are nothing short of problematic of their own accord. Please make sure you do consult an insolvency advisor to determine whether bankruptcy is the best option for you.