There is a lot of confusion as to how life operates after bankruptcy. Many people think they will be constantly reporting to their trustee or will have someone going over their finances on a weekly basis. Some even think they will have all their bank accounts closed down, their phone switched off and the rent cancelled. There are plenty of myths, but the reality is a lot simpler than what most people assume.
After you declare bankruptcy, your creditors are notified that you no longer owe them money anymore and that they are not allowed to contact you about the debt ever again. So the phone calls, letters, emails and direct debits stop. This is generally the biggest benefit for people, as the stress of being constantly harassed can be worse than the debt itself.
Depending on your circumstances, you may not notice any difference whatsoever, other than the lack of contact. Generally, your ability to obtain further credit is negatively affected in the short term (3-5years in most cases). Though if you are looking to declare bankruptcy, you may already find that you cannot obtain more credit as it is.
You are allowed to travel overseas, but you will need to apply for permission. We have found that the vast majority of people who apply to travel are granted permission. The process is very straightforward and can be completed in under 10 minutes. The only reason you would be declined permission is if you are needed to administer some element of your bankruptcy. For instance, if you have a number of properties that need to be sold, you may be required for further information. This is incredibly rare though, as most people declaring bankruptcy don’t own a house.
You may be required to make some income contributions, but the thresholds are very reasonable. Once again, it is rare that people breach the threshold and are required to pay any money back. There is no limit to the amount of money you can save while bankrupt, as your bank accounts aren’t restricted.
Reporting to your Trustee:
You are required to update your details if your circumstances change (such as your living arrangements, income, and contact details). The registered trustee will most likely contact you on the anniversary of your bankruptcy every year to check your details. They will ask about your income, employment and living arrangements.
After Bankruptcy is complete:
You are automatically discharged from bankruptcy after 3 years and 1 day, at which point any restrictions are lifted. Bankruptcy will stay on your credit file for another 2 years after discharge, but it is then automatically removed. From there, you are free to build up your credit rating, be the director of a company, travel overseas and earn as much as you like.
Many people are curious as to whether they will be able to get a home loan after bankruptcy. Your ability to obtain a home loan in the future depends on a number of factors, including the size of your deposit and your credit rating, but bankruptcy should not be a determining factor after it is removed from your credit file. There shouldn’t be many issues though It is difficult to give a firm answer, as we don’t know what the lending landscape will look like in the future given the investigations that are underway at the moment.
If you are in a position where your debts are unserviceable, then bankruptcy may be worth investigating. It is generally a question of whether the consequences of bankruptcy (minimal as they may be) are worse than the consequences of unserviceable debt. For many people, the restrictions placed on bankrupt individuals are barely noticed.
If you are considering bankruptcy and are wondering how you will be affected, feel free to give Safehaven Debt Services a call on 03 9452 6900, and we can discuss your situation.