When a business fails or an individual becomes insolvent, declaring bankruptcy may well be the consequence. The process may have some immediate benefits. For example, it can relieve a lot of pressure by ensuring creditors are handled according to a fixed process, so they stop pursuing you directly. Painful as it may be, it also offers the possibility of a fresh start. But what are some of the longer-term consequences of declaring bankruptcy?
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Credit and loans
Your bankruptcy will remain on your credit report for 6-10 years, depending on the country where you declare bankruptcy. As soon as you entered the process, you will have been asked to surrender your cards and your bank account will have been frozen.
Longer term, you may find that credit cards will be harder to obtain. Approval for future loans and mortgages will also be affected and you’ll probably find it hard to obtain favorable interest rates. On the other hand, as your bankruptcy will be in the public record, you may find yourself flooded with unsolicited offers for loans at elevated rates.
Directorships
An undischarged bankruptcy may also have an impact on the type of work you can do. You will not be permitted to act as a director or be involved in any way in the management of a company until your bankruptcy has been discharged. For certain professions, such as law, accountancy, financial services, etc, you may no longer be able to hold the license from the relevant professional body required for you to practice.
Your assets could be seized
The court may decide to seize and sell your assets to pay your creditors. While certain items, such as clothing and basic household necessities are exempt, you could still find yourself homeless if you own a property. If you are in arrears with your rent, bankruptcy won’t protect you from eviction.
As the rules are complicated, it’s essential to obtain expert advice about how you could be affected. For example, if you’re declaring bankruptcy in the UK, find out more from Insolvency Experts in Manchester.
However, if you require items (such as your car) to allow you to work and earn an income, the court can exempt these.
If you work and earn income during the period of bankruptcy, the court will allow a proportion for you to live on.
There will be emotional fallout
While your situation will have severe financial implications, the emotional impact on both you and your family can have even more serious long-term consequences. For you, feelings that you’ve failed and let your loved ones down can result in depression and a feeling of helplessness. Your family will feel the impact of the loss of security and the reduction in their standard of living. And if your business was linked strongly with the local community, you’ll also have to deal with that fallout.
There’s no doubt that the effects of bankruptcy will reverberate in a person’s life for years to come, but can also help to ‘clear the decks’ and be the first step on the road to financial recovery.
