While in majority of cases we would say that it is in the individual’s interest to do everything possible to avoid declaring bankruptcy, there are times and circumstances when bankruptcy offers the best debt solution.
While going bankrupt does have numerous drawbacks, it can offer instant relief from unaffordable debts and an opportunity to start again.
Bankruptcy allows an individual to earn $50,000 pa without needing to apply this money to the repayment of debts. It also allows one to own a modest car, some furniture and sometimes ever keep the family home.
Lets look at some of the main worries that people harbor when it comes to bankruptcy:
The fear that everything they own will be sold up in order to repay debts to creditors leaves people feeling very vulnerable and unwilling to even consider bankruptcy. However even a bankrupt is entitled to keep some of their assets. In some circumstances people are able to keep the family home despite bankruptcy. While you may not be allowed to drive an expensive car and live and extravagant lifestyle, basic assets needed by an individual including tools of trade and a modest motor vehicle are allowed.
There is little freedom already if you are avoiding phone calls from debt collectors and trying to juggle bills. It may be only a matter of time before one of your creditors pushes you into bankruptcy.
It is true that a bankrupt is not allowed to hold company directorships, needs permission before looking to travel overseas etc. However when money is short there is little personal freedom. You do need a strategy that will help in paying out current debts. In most cases ignoring the problem or doing nothing at all will only make matter worse.
If you are concerned about the stigma of bankruptcy, you need to understand that your bankruptcy s not something that will be obvious to everyone you meet. In fact the status of bankruptcy was created to offer people protection from creditors where they have no way of repaying all their debts. Current bankruptcy is n no way a definition of your financial position in the future. It offers freedom from old debts and old mistakes and allows one to make a fresh start. That opportunity can be worth everything.
It is of course true that bankruptcy will have an impact on one’s ability to qualify for finance. However this may be the price that needs to be paid for resolving insolvency. Anyone considering bankruptcy as a debt solution will most likely already suffer from bad credit and unpaid defaults. The presence of defaults on a credit report will also prevent loan approval through mainstream lenders.
While you are in bankruptcy you will not be able to keep more than $50,000 of your earned income. Any earnings in excess of $50,000 will be applied to the repayment of your debts. This is only in place for the duration of bankruptcy – for most people a 3 year period. Following discharge this restriction dissapears.
For people who may have huge debts that can not be repaid, bankruptcy may offer a very viable debt solution that should not be ignored.