When Aussies get into debt, their minds immediately jump to bankruptcy. However, there are plenty of options to avoid bankruptcy. Declaring bankruptcy is commonly viewed as ‘the easy way out’ of debt but there is nothing easy about bankruptcy. The process is stressful, lengthy and involves several rules and restrictions you have to live by.
Bankruptcy is life changing, disruptive and can leave you with little freedom. Bankruptcy can provide a solid foundation from which to rebuild their wealth and may also be the right debt relief solution if you cannot come to a satisfactory arrangement with your creditors. For everyone else, it’s best to avoid bankruptcy. We have put together five main reasons why to avoid bankruptcy.
1. If you don’t avoid bankruptcy it could affect your employment
Losing your job and income is the last thing you need, especially if you are already experiencing financial hardship. However, there are certain occupations within particular industries which may not allow you to continue to work as a licenced professional if you are a declared bankrupt. This includes real estate agents, financial planners, certain trade professions and the police service.
Each industry body has its own membership rules regarding bankruptcy and can be subject to conditions and bylaws separate to the Bankruptcy Act. Before you declare bankruptcy you should confirm with your industry body as to whether bankruptcy will affect your professional membership or your ability to practice a particular trade. If it will affect your employment, you should look for other debt solutions to avoid bankruptcy, such as a Debt Agreement.
2. You could lose your home
When you become bankrupt, your Bankruptcy Trustee becomes the owner of any share you have in a property. Your trustee will then determine this most appropriate way to deal with your property. Most likely the Trustee will arrange to sell the property with all proceeds going to your Bankruptcy Estate and then distributed to your creditors to repay your debts.
The best way to avoid losing your family home or any shares you own in a property is to avoid bankruptcy with other debt relief methods.
3. It is a long-lasting commitment
The period of bankruptcy generally only lasts for three years. It will remain on your credit rating for a minimum of 5 years and your name will be on the National Personal Insolvency Index for life. Once you have been discharged from your bankruptcy you will be free to apply for finance again.
Lenders are very cautious about lending money to discharged bankrupts, so if you wanted to apply for a loan you might have to go through non-conforming lenders and pay a higher interest rate. Positive Solutions Finance can assist you with loans for bad credit.
4. Bankruptcy will restrict your life
During the term of bankruptcy, you will need to adhere to restrictions which apply to activities with a high expense. For Instance, if you want to travel overseas you must first seek permission from your Trustee. The fee is $150 and is applicable each time you apply.
You also can not pursue any legal action without first consulting your Bankruptcy Trustee. Bankruptcy takes away your ability to make decisions and in some aspects your freedom. If you can avoid bankruptcy, you will also avoid these restrictions.
5. Bankruptcy will impact your capacity to earn
There are specific thresholds on your assets, income and windfall gains when declaring Bankruptcy and during the Bankruptcy term. For example, if you earn more than the set threshold, any additional funds will be distributed to your Bankruptcy Estate. You can check the current thresholds on the Australian Financial Security Authority Website.
Your Bankruptcy Estate will also receive lump-sum windfalls, such as inheritances and lottery wins. If you want to get your finances back on track, it’s best to consider all your options to avoid bankruptcy.
What are my options to avoid Bankruptcy?
Thankfully there are a number of other debt relief solutions available to people in debt, so you can avoid bankruptcy. Debt Consolidation, Refinancing and Informal Debt Agreements are some popular debt relief options as they won’t have an impact on your credit rating.
Another positive solution which is successful in helping people avoid bankruptcy is a Part 9 Debt Agreement.
A Part 9 Debt Agreement is a government legislated agreement between you and your creditors. It allows you to negotiate the amount of debt you owe to reduce your repayments to an affordable level. This often improves your cash flow and makes it easier to repay your debts and avoid bankruptcy.
For more information on debt relief options in Australia, give us a call on 1800 00 3328 and an experienced Case Manager will work with you to find a debt relief solution tailored for specifically for your situation.