What happens to debt after bankruptcy?
What happens to your debt after bankruptcy?
If you file for bankruptcy, you will be bankrupt for 3 years (this period may be extended in some circumstances). During this time your Trustee will sell assets that can be sold under the act and collect any income contributions from you that you are required to pay. At the end of the bankruptcy period, everything else still owing is written off.
There are some debts that are not included in bankruptcy. Child Support, HECS/HELP debts and court fines are not cleared by bankruptcy. You will continue to owe these debts. The lender on a secured loan like a car loan, mortgage or consumer lease still has rights over the property. If you do not continue to repay these debts the lender will foreclose on the property.
What happens from the banks side after bankruptcy?
You as an individual no longer have to repay the debt. You are released from it. The bank is still owed the money but they can no longer collect it from you and the money that was lent to you by the bank came from somewhere and that somewhere needs to be repaid.
Banks raise money to lend in 2 ways. From depositors and borrowing from other banks. If you file for bankruptcy the bank still has to pay both of those sources back. They do this by charging everyone more interest on their loans and credit cards. So the ultimate effect of bankruptcy is that rates are higher for everyone else.
Frequently asked questions regarding bankruptcy
- If I file for bankruptcy does the government pay out my loans?
No, the government does not, in general, pay out your debts. There is one specific circumstance where the government will. If you owe wages for employees the government’s Fair Entitlements Guarantee will payout unpaid wages (up to 13 weeks), unpaid annual/long service leave, payment in lieu of notice (up to 5 weeks), and redundancy pay (4 weeks per year of service).
- Will someone take my furniture?
No, no one is going to take your furniture. If you have expensive antiques, they might, but general household items are protected. If you have a finance for the furniture, however, like a lease, rental, or loan, bankruptcy doesn’t clear these debts and if you stop paying them they will repossess the asset.
- Joint Debts
If you file for bankruptcy, the bankruptcy does not release the other person from debt. They will still have to repay that debt.
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