The value of an asset is security against a secured loan (e.g. a mortgage). This gives your creditor the right to repossess the item if you fall behind or fail to make regular payments. If, when the creditor resells the item and it does not cover the original cost to the creditor they may make a claim against the bankruptcy for the balance owing.

How long are you Bankrupt?

You are usually bankrupt for a minimum of 3 years from when you file the Statement of Affairs. This can extend to 5 years, or 8 years, if you breach the terms and conditions of your bankruptcy.

Life after Bankruptcy

Once you file for bankruptcy, you are responsible for any debts you incur from the time you file a Statement of Affairs. Your commercial credit record will list you as a bankrupt. This is certainly something you want to avoid as this record is searchable by the public and is visible for 7 years, even if you discharge the bankruptcy early.

You also want to avoid having your name listed in the National Personal Insolvency Index database. Once you are listed, you are listed forever.

Other problems you may find once you are bankrupt are that lenders may limit how much you can borrow, or limit the credit limit on any credit cards. You can find it difficult to rent a home, have essential services (e.g. electricity and telephone) connected without paying a bond in advance. Some banks will not allow you to hold an account with their institutions and some restrict how you use any bank accounts.

How will Bankruptcy affect Joint Mortgages?

If you declare bankruptcy, your home may be at risk as the trustee may need to sell it to recover money to pay your creditors. Because your home is a secured debt, the mortgagee is entitled to sell your home if you can not pay the mortgage payments. Even if you are not behind on your mortgage payments, the trustee can sell your house to recover some of what you owe to your creditors. If the house sells for less than you owe the mortgage company, the difference is added to your bankruptcy debt. If it makes a profit, the money goes to the trustee to distribute among your creditors.

Often homes are owned in joint names and if only one of the owners goes bankrupt, their partner becomes a tenant in common. That partner can then take out a caveat to protect their partner's title on the house.

The non-bankrupt owner will have first choice to buy the other partner out. If they cannot afford to do this then the partner may agree to its sale. The non-bankrupt owner will share the proceeds equally with the trustee to pay off their partner's debts. If a partner refuses to sell then a trustee can apply to the Court for an order to sell. As you can see, going bankrupt is not the easy option. Take a look at your finances - are they all in order?