Today personal bankruptcies and insolvencies are at record levels, affecting three times as many Australians as 20 years ago.
While for some bankruptcy is the only plausible solution in all cases it should be viewed as a last resort, rather than an easy fix.
Firstly you should be making a decision of how to solve your debt problems and not your creditors.
Some more aggressive debt collection almost force bankruptcy on to people. That is not to say that putting your head in the sand and ignoring your debts is the answer.
From September creditors will be able to commence bankruptcy proceedings for amounts above $5,000. Even if the debt is lower, costs and interest can take it over the threshold.
Following the issue of a Bankruptcy Notice, a debtor has 21 days to pay or come to an alternative arrangement. When there is no agreement, a Creditor’s Petition can be brought before the Federal Court seeking to make the debtor bankrupt.
It’s an expensive process compared to the free route taken by most people who declare voluntary bankruptcy with the official receiver at the Insolvency and Trustee Service Australia (ITSA).
Excessive use of credit is a great contributor to the debts problems experienced by middle-class Aussies.While bankruptcy can be the best option for people with the least to lose – those on low incomes with no savings or assets – and no realistic prospect of paying back debts. If you have an good income and some assets there may be opther options worth pursuing.Bankrupts can’t work in a range of occupations, from police officers to real estate agents. A trustee controls your affairs. Bankrupts can not borrow money, go overseas or hold directorships in companies.
A bankruptcy will result in the trustee selling just about everything you own apart from “reasonable household goods” and some items of sentimental value – like your wedding ring.
You do get to keep a car worth up to $6,500, tools of the trade up to $3,500, your superannuation and any life insurance policies.
But your earnings will be severely restricted. The trustee takes one in every two dollars you bring in above a “base income threshold”.
Consider too your ability to access finance down the track. Bankruptcy remains on a credit rating for seven years, but the listing on the publicly accessible National Personal Insolvency Index is permanent.
In some cases, informal alternatives are appropriate – from consolidating debts into a single loan to home lenders agreeing to a “mortgage holiday”.