Published on 20 October 2016

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 will derail your life the way you know it. Let us factor in these realities to understand bankruptcy.

  • When you declare bankruptcy, you are effectively telling the world that you are not credit worthy, that you have no money and that you would not repay your lenders, whom you had pledged to repay. Your assets will be liquidated but they may not yield enough returns to repay all your creditors or lenders. An appointed trustee will try to repay as much as possible to all creditors but they will take a hit. The whole world of lending will come to know that your word is not good enough and you would anyway enter a three-year bankruptcy period and a seven-year black hole with your credit history. No bank or institutionalized lender will lend you any money for almost a decade after you declare bankruptcy. It takes time to rebuild credit after the seven-year abyss.
  • Since all your assets will be liquidated in case of personal insolvency, you wouldn’t have much on you. Apart from some items that have sentimental value and those that are very basic, all assets in your household and whatever you own will be used to repay creditors. Your life as you knew it will change and it would take a long time to rebuild that.
  • You would also be ineligible for various types of jobs. Business avenues will dry up. You wouldn’t get investors to trust you.

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