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Understanding What Bankruptcy Will Mean

Bankruptcy is not a step that should be taken lightly. If you have no foreseeable means of properly repaying your debts and you have few personal assets, bankruptcy may be your best alternative. However, this measure is generally not recommended unless you have no other recourse, as the consequences can have a far-reaching effect on your financial future. Before considering bankruptcy, it's imperative to discuss your options with a knowledgeable debt advice counsellor. A debt advisor can help you understand what bankruptcy means and how this decision will affect you and your family.

How Bankruptcy Affects Your Assets

When you are made bankrupt, a trustee will be appointed to manage your case. Your trustee may be either an Official Receiver, appointed by the bankruptcy court, or an authorised insolvency specialist. You will be required to turn over any financial records or statements that might help your trustee manage your bankruptcy. The trustee will review your assets and liabilities in order to determine whether you have enough money or property to repay a portion of your debts.

There are certain assets that you may be allowed to retain, such as tools, supplies or equipment that you use in your job. If you are a tradesman, for instance, you may be allowed to keep the tools that you use in your occupation. If you are an accountant, you may be allowed to keep your computer, office supplies and other materials that you use in your home office. You will generally be allowed to keep basic items like clothing, household supplies, furniture and other necessities that you use in your home.

If you own a home, the title to your residence and the share of the property that you own may be transferred to your trustee. In some cases, a house may be sold and the proceeds may be used to repay creditors. If you own the house with another person, the trustee may not take the title, but he or she may ask the court to sell the property and may claim your share of the value of the home. After you are made bankrupt, a trustee may retain an interest in the property for up to three years or more.

Bankruptcy can affect your financial plans for retirement. State pension benefits cannot be claimed, but if you have a company pension or a private pension plan, all or part of these assets may be seized to help repay your creditors. The nature of your pension and your future earnings from this fund will determine whether it can be claimed as one of your assets.

How Long Bankruptcy Lasts

A bankruptcy will typically last for 12 months. During this time, you must follow the court's bankruptcy restrictions, or the discharge of your debts may be delayed. Bankruptcy restrictions limit your ability to borrow money, run a business, promote a company or work as an insolvency practitioner. Violating any of the bankruptcy restrictions is considered a criminal offence. In addition, bankruptcy will have a negative effect on your credit rating.

Understanding what bankruptcy will mean may help you make a decision about whether this measure is right for you. Even after your debts have been discharged, a trustee can retain control over your assets for a number of years. If you have made arrangements to repay any of your creditors using your income, you must continue to meet these commitments. Speak to a knowledgeable debt advisor about your options before you consider bankruptcy. An Individual Voluntary Arrangement, a final settlement or debt consolidation may be a more appropriate solution.