Bankruptcy can be an effective debt relief solution, but there are real consequences. During bankruptcy, many of your assets are up for grabs and you can potentially lose everything from cash in your bank account to real estate, cars, and investments. A trustee appointed by the court to administer your case has the right to sell certain assets and use the proceeds to repay your debts.
Here's what you risk when filing for bankruptcy.
Assets That Are Safe
Some assets are protected in bankruptcy, including regular household goods like furniture and a computer, your primary vehicle with less than $7,700 equity, tools of the trade up to $3,750, up to $1,000 in your bank account for living expenses, and assets such as personal injury compensation payments and life insurance policies. Almost everything else can be lost.
Assets You Will Likely Lose
The list of protected assets is fairly short. If you have any of the following, you will most likely lose them when you file for bankruptcy.
- Real estate
- Vehicles with more than $7,700 equity. This exception only applies to one vehicle. If the value of your primary vehicle exceeds this limit, the trustee can claim it.
- High-value personal belongings like antiques
- Artwork and some jewellery with a high value.
- Tools of the trade with a value exceeding $3,750
- Your tax refund
- An inheritance
- Any cash in a bank account exceeding $1,000
Your Spouse's Assets Are Affected
Bankruptcy doesn't just impact what you own; your partner's assets can also be affected if they jointly own any asset with you, they have possession of any asset you own, or they own assets that you helped buy or contributed toward, even if the assets aren't in your name. This means a home or car that is solely in your partner's name - but you helped buy - could be at risk if you file for bankruptcy.
Bankruptcy Affects More Than Your Assets
Bankruptcy has very long-reaching consequences on your life as it can affect not only what you own now but also your income, business, and employment. Don't forget to consider other ways bankruptcy can affect you:
- If you earn more than a certain amount, you can be required to make payments to the trustee.
- You will face restrictions on employment and running a business.
- You will need permission from the trustee to travel overseas.
- Bankruptcy will affect your ability to obtain credit for 5 years.
- You may lose the right to take or continue legal action.
- Your name will be on a public register of insolvency proceedings.
- Bankruptcy usually lasts for 3 years but may be extended up to 8 years.
While bankruptcy can offer relief from your debt, be sure you consider all of the consequences. Going bankrupt can have long-lasting consequences, including not being able to work in the industry you have trained for, in addition to losing many of your assets. With a comprehensive understanding of the full impact of bankruptcy, you will be better able to make a decision that helps you achieve your financial goals.