Making a fresh start with bankruptcy

If you’ve been struggling with your debt levels for some time and you can’t pay the bills, bankruptcy might be a solution for you.  It’s an important decision so here are a few things to know.

Bankruptcy as a financial solution

Firstly, declaring bankruptcy is not necessarily a last resort but may actually be a legitimate financial solution. For some people it can be a positive step – enabling them to make a fresh start, and to start again with reduced stress and a clean slate.

Secondly, you are not alone in your financial difficulty. There were 17,202 bankruptcies in Australia in 2015–16 and this number rose from the previous year.

For people with large debts, just trying to figure out the options can be confusing and stressful. Sorting out debt problems can hugely reduce the stress and anxiety, the letters of demand arriving in the inbox and the harassing calls from debt collectors. For some who are having serious financial difficulties, declaring bankruptcy can enable a much greater peace of mind.

Common Causes of Debt Problems

Unemployment, or loss of income, and excessive use of credit are the most common causes of non-business bankruptcies in Australia – in other words debt may just as likely be caused by external factors as by individual behaviour. For this reason going bankrupt no longer carries the kind of social stigma it used to.

Remember, bankruptcy is a legitimate tool to manage a difficult financial situation and it enables many with unmanageable levels of debt to make a fresh start. Some may even argue that bankruptcy serves an important economic objective because it enables rehabilitation for debtors who can then continue to contribute skills and productivity to their community.

Statistics show us that the majority of bankrupts earn less than $30,000 per annum, the total debt of most exceeds $20,000 (usually owed to banks) and bankruptcies are the largest category of personal insolvency activity in Australia (Profiles of Debtors 2011, Insolvency and Trustee Service Australia).

There’s minimal social stigma anymore

One of the reasons people shy away from bankruptcy is because they are embarrassed about it, don’t want anyone else to know and worry about their ability to get credit in the future. As already discussed, bankruptcy is not the social stigma it once was. If you are thinking of going bankrupt, even if people do find out you might be surprised at how minimal the social impacts are.

In reality, once a person declares an intention to become bankrupt the creditors are notified but it is unlikely that anyone else will find out about it, unless you tell them. This is because although bankruptcies are a matter of public record, through the National Personal Insolvency Index, most people don’t go looking to find bankruptcy records.

The laws around bankruptcy are there for a reason – to enable people to have a fresh start. If your level of debt is greater than your ability to pay it back within a reasonable time frame then bankruptcy may be your legitimate right to take back your life and start afresh.

Check if it’s the right solution for your situation

So if you find yourself unable to pay off your debt and not sure about whether bankruptcy will work for you, explore your debt management options with a knowledgeable debt solutions expert like Get Out of Debt today.

Once you declare yourself bankrupt there is no reversing that step and you will have to deal with all the consequences of bankruptcy. So before you speak to a debt solutions expert, you might find the following handy to know:

  • Bankruptcy normally lasts for 3 years and 1 day
  • Your estate will be administered by a trustee.
  • Your trustee will investigate your financial affairs and may recover assets recently sold or transferred to someone else
  • Your creditors will be notified of the bankruptcy
  • Your unsecured creditors must stop chasing you for payment
  • Your trustee may sell your assets (although you may be allowed to keep certain types of assets like tools of trade and a car)
  • If you are earn more than $1,052.63 per week take home pay, your trustee may take some of that income to pay back your creditors (if you have dependents the threshold exempt earning capacity is increased, for example if you have 4 dependents the trustee may not take earnings until you earn $1,410.52 per week)
  • Your name will be on the National Personal Insolvency Index for life
  • You may find it difficult to get credit during the term of your bankruptcy
  • Your credit rating will be impacted
  • You will have to ask permission of your trustee to travel overseas
  • You can’t be a company director or secretary for the term of the bankruptcy but you can be a sole trader with an ABN
  • Once you are bankrupt any personal tax debt for income tax and GST will be excused
  • Fines will still have to be paid

If you have taken the trouble to read this article, chances are you have been doing other research of your own to educate yourself about your options and the pros and cons of each.

Don’t let your situation get worse

The best thing you can do today is take control of your situation. Don’t put off making a decision about how you are going to handle your circumstances and which path you will go down to fix the problems. The longer you leave it, the worse your problems are likely to become.

If you remain unsure, talk to a debt solutions expert about your options and which one will benefit you most. It is a good idea to find out how much each of the options will cost you in the coming years.

Educate yourself as much as possible. Remember bankruptcy is a legitimate financial solution and maybe the first step to getting you on the road to financial freedom.

If you would like free bankruptcy advice, please call us or fill in the form on this page and one of our bankruptcy consultants will call you.