How does declaring bankruptcy affect you?

Personal or individual bankruptcy is a taboo subject. Regulated by the court, individual bankruptcy is a process formulated to help people with massive debt to start again, clearing you of your accountability.

Although the process of filing individual bankruptcy is meant to help, the mere act of filing it is already a disgraceful deed in the eyes of society. Companies won’t hire you, and you can’t use credit cards, get a mortgage, or get loans.

People find it hard to trust you because the law brands you as “financially incapable to pay borrowed money.” It can slow down your life but the bankruptcy stigma is normally temporary.

Effects on your finances

Normally, filing for bankruptcy nullifies your accountability to your debt without having to pay your creditors. These debts are mostly business, credit card, medical bills and unpaid taxes.

Once all your eligible debt is wiped out. Your cash flow will drastically shoot up but the law may require you to pay unpaid interest when you show financial capability again.

Regarding your assets, you can only keep a limited amount of asset value. Any excess will be transferred to your trustee, who will sell them and pay your creditors.

After filing for bankruptcy, most creditors will not entertain you because of your prior fiasco. You become a confirmed risky person financially once you declare bankruptcy.

Effects on your home and mortgage

The first matter that filing individual bankruptcy will affect negatively is your ability to acquire a mortgage for a house. You will only be able to do this when your credit rating finally recovers.

A good way to avoid these inconveniences is to lock in a lease before filing bankruptcy. This way, you will be able to have a place to live in, assuming that your credit score did not take a massive beating.

Effects on your family

Bankruptcy can ruin families. The financial implication of bankruptcy can stress out your family so much that it can also ruin emotional ties.

Your spouse will stop trusting you and your children will lose a huge amount of respect for you. They will also question your inability to fully disclose your financial struggle while it is still solvable.

Couples can get divorced because of bankruptcy. Parents can lose a custody battle because of bankruptcy. What’s worse is the law may not even allow you to go near your family at all.

Other relatives may start dissociating themselves from you just because they don’t want to be involved with someone who has been dubbed by the law as a financial delinquent.

You will be unable to travel out of the country without written permission from the Department of Insolvency or before obtaining a court order which allows you to travel overseas.

Effects on family

The negative effects of bankruptcy on your family and loved ones can last for years, even decades. Even when you recover from bankruptcy and become a better person, financially, they will still remember the time when you gave up on the fight to pay debt.

There are families who stick together through thick and thin, no matter how bad the bankruptcy may be. You still cannot deny the fact that financially, it will affect your family because they live with you or they may be financially dependant on you.

[ The Truth and Myth about Bankruptcy ]

Effects on your job

As a bankrupt, you will not be able to work in certain professions which have restrictions imposed by their professional associations or licensing authorities. These professions include lawyer, quantity surveyor, accountant and doctor.

Once declared a bankrupt, you may not act as a director of a company. You are also not allowed to own a business or be part of a business ownership, so no entrepreneurship is legally allowed.

Effects on loans

Just like in mortgage and credit, your ability to take loans will also be jeopardized by the bankruptcy. No bank will offer you a loan.

It will take years to recover from a credit score crash and you will have to double your financial capability and credentials to earn back any financial institution’s trust.

Before considering filing for bankruptcy, make sure you look at all the options. Consider all the effects of bankruptcy in all aspects of your life and finances and see which works best for you.


Are you bankrupt? If yes, you are one of 64,632 Malaysian between the ages of
KUALA LUMPUR (Aug 7): A total of 11,559 people have been declared bankrupt from October

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