What does it mean to declare bankruptcy? Things you are not told!

Bankruptcy is a legal provision that allows you to declare yourself incapable of repaying debts. You could be truly bankrupt, which literally means that you don’t have a penny in your bank. Realistically, you don’t have enough money to repay the loans or creditors and would want the debts to be waived off.

Bankruptcy can be obtained for due to personal reasons, including strife among spouses. Personal bankruptcy or insolvency can be due to unemployment or if your business has run into unbearable losses. There can be other causes such as failing health or some personal incapacity that prevents you from working and hence repaying your debts.

Bankruptcy is almost always looked at from the perspective of debt and it is a way to get relieved of the obligations to repay. However, what most people don’t realize is that bankruptcy can have serious and lasting consequences. Let us factor in these realities to understand bankruptcy.

• Bankruptcy generally lasts three years and one day, but can be extended. It does not release every type of debt.
• A trustee may sell some assets. Protected property and indexed limits apply, so it is incorrect to say all possessions will be sold.
• Credit reports generally record bankruptcy for five years from its start or two years after it ends, whichever is later. The National Personal Insolvency Index is separate and generally retains the record permanently.
• Bankruptcy can affect borrowing, business activities and some professional licences. It is not an automatic ban on all employment or a universal ten-year lending prohibition.

Seek independent advice before deciding. See AFSA: consequences of bankruptcy.