If you had it in your head that this would be an article about how to win the lottery and blow it on fast cars and big houses, you’re wrong. But don’t be discouraged.
This article is going to be a new perspective on bankruptcy, how it is a growing trend in Australia, and why it might be the answer to your debt problems.
Now, it’s not for everyone, but let’s dive in and explore this a little more.
What Is Bankruptcy?
Basically, bankruptcy is how the government helps those people who are in unmanageable debt move on and start again in their lives. It is a legal declaration that you aren’t able to meet your debt requirements, and that you shouldn’t have to pay.
There are two ways that you can end up in bankruptcy. Either you can be declared bankrupt by a creditor, or you can declare yourself bankrupt.
To be declared bankrupt by someone else, you only have to owe as little as $2,000, so if that isn’t your intention, be very careful with your debts. To declare yourself bankrupt, you can go to the Insolvency and Trustee Service Australia (ITSA) and start the process yourself, to cancel your debts.
Declaring Yourself Bankrupt
Declaring yourself bankrupt is not something to do without a lot of thought. It should be one of the last options for people in serious debt, when there really is nowhere else to go. We’ll talk more about the consequences of bankruptcy later, but know that they are long-term and not to be taken lightly.
Now, the process of declaring yourself bankrupt is not as hard as it seems.
The first thing you’ll need to do is get some financial advice.
There are a number of charitable enterprises in Australia that can help you figure out what your next step is in your financial future.
These services are usually advertised with the term ‘financial counselling’ so keep an eye out for that. They’ll see if they can figure out other ways for you to deal with the debt like amalgamating your debts into one place, payment plans etc.
If they recommend that to go bankrupt is your only option, you’ll need to go into the Insolvency and Trustee Service Australia (ITSA) and fill out a Debtor’s Petition and a Statement of Affairs. At this point, you’ll need to choose a registered trustee to manage your affairs, or you can use one of the Official Trustees at the ITSA. If your application for bankruptcy is approved, and they aren’t always, you will be bankrupt for the next three years.
Your Trustee’s Powers
Now, during this time, your Trustee will have a lot of control over your financial life.
They can sell off your assets, including your house and your car if its worth more than $7,500, to pay your debts. They can also take ‘contributions’ from your wages if you earn over a certain amount.
Your Trustee can even recover assets that you’ve transferred to others, especially if you’ve done so to avoid losing them after declaring bankruptcy. They won’t take everything from you though. You’re allowed to keep your super contributions, and basic household items, and anything that has sentimental value (although you may need to petition your trustee to keep it).
What Doesn’t Get Wiped
Now, don’t make the mistake of assuming that bankruptcy is going to wipe the entire slate of your debts clean. There are some things that bankruptcy will not erase, and that you’ll still need to pay off at some point. This includes your HECS debts, which are not pursued by creditors. People who go bankrupt may also have to continue to pay child support, although the value will be determined by their new income.
What Are The Effects Of Bankruptcy
The effects of bankruptcy are long-term, and although bankruptcy can represent a new start, it doesn’t come without side effects.
The biggest effect of bankruptcy is that it’s a big black mark on your future credit. Many people don’t realise that when they declare bankruptcy, this not only appears on their credit report for five years, it also appears on the National Personal Insolvency Index (NPII) for your entire life. This means that although you may find it hard to get a credit card or a loan for five years, the fact that you’ve been bankrupt won’t be something you can get away from easily.
Before you make any decision about bankruptcy, it’s important to get all the facts.
There are a number of other limitations on bankrupt individuals, and the effects of these can be far-reaching. So, do yourself a favour and get the right information from an expert. Bankruptcy can be a way to start over if you’ve really managed to get yourself in trouble with your debts, but it shouldn’t be a knee-jerk reaction. You can start to find out more about personal insolvency here.