Bankruptcy is the legal process where by a person is declared unable to pay their debts. If a person gets to the point where they are unable to pay their debts or make alternative arrangements, they can declare themselves bankrupt. If debts are below $5,000, then creditors can also apply to the courts to have a person declared bankrupt.
The decision to declare bankruptcy
The main benefit of declaring bankruptcy is that it stops banks pursuing debts owed against secured property and also stops unsecured creditors from pursuing legal action against the bankrupt individual.
Just because a person is declared bankrupt does not mean that they are released from their obligations to pay off debts. The requirement to meet debt obligations is especially relevant for child support or spousal payments. A bankrupt person is also responsible for any debts accrued during bankruptcy.
Property that can be taken from a bankrupt
Some property that can be taken to pay creditors includes:
- Any property of interest.
- Gifts from a will.
- Cash held in a bank or financial institution.
- Stocks and shares.
- Money owed from another source.
- Household fittings that are of value.
During bankruptcy, creditors are unable to take possession of the following:
- Property of sentimental value.
- Some property of a non-bankrupt partner (spouse).
- Policies for life insurance and endowments.
- Property held in trust for another person.
- Household goods like televisions, fridges and washing machines.
- Certain tools of the trade required for work.
When does bankruptcy come to an end?
After three years, bankruptcy comes to an end as long as no successful application have been made by a trustee to extend the bankruptcy. The other way that bankruptcy can come to an end is if full payment has been made to all creditors or by special resolution if all creditors are willing to accept a lesser amount.
Declaring bankruptcy is a serious decision that can have long lasting consequences. If you’re considering bankruptcy, seek guidance from a debt or bankruptcy lawyer.