5 Reasons to Avoid Bankruptcy
When Aussies get into debt, their minds immediately jump to bankruptcy. There are plenty of things you can try first to avoid bankruptcy. Declaring bankruptcy is commonly viewed as ‘the easy way out’ of debt but there is nothing easy about bankruptcy. The complicated process is stressful, lengthy and involves several rules, restrictions and obligations you have to live by.
Bankruptcy will change your life and if it is entered into lightly, can do more harm than good. Bankruptcy does have its place in Australia. For those with no other choice, bankruptcy can provide a solid foundation from which to rebuild their wealth. For everyone else, bankruptcy is something you should avoid. If you are convinced bankruptcy is the right path for your debt recovery journey, here are some reason why you should avoid bankruptcy.
1. It could affect your employment
The last thing you need when you can’t pay your debts is to lose your job. There are certain occupations within Australia which won’t allow you to continue to work if you declare bankruptcy. These occupations are generally those involved with professional associations and licensing authorities, such as real estate agents, financial planners, certain trade professions and the police department.
Each occupation has its own conditions around bankruptcy of their members and is regulated outside of the Bankruptcy Act. Before you declare bankruptcy you should confirm with your organisation as to whether bankruptcy will affect your professional membership or your ability to practice a particular trade. If it will effect 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, the Bankruptcy Trustee in charge of your case becomes the owner of any share you have in a property, whether you are a part owner or the whole owner. Your trustee will then consult with your creditor and any co-owners of the property to arrange the best way to proceed. Most likely the Trustee will arrange to sell the property with all proceeds going to your creditors to repay some of your debts.
If you want to keep your family home or any shares you own in property you should avoid bankruptcy with other debt relief methods.
3. It is a long lasting commitment
The period of bankruptcy only lasts for three years, but it will remain on your credit rating for eight years and your name will be on the National Personal Insolvency Index for life. Once you have been discharged from your bankruptcy, you are 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 than average interest rate. Positive Solutions Finance can assist you with loans for bad credit.
4. Your life is restricted
During the term of bankruptcy, you will have to adhere to restrictions applied to activities with a high expense. You cannot travel overseas without restrictions. If you have an emergency which requires you leave the country, such as a sick relative, you must first seek permission from your Trustee and the court.
You also can’t pursue any legal action without first consulting your Trustee. Bankruptcy takes away your ability to make decisions. You should avoid bankruptcy if you don’t want these restrictions in your life.
5. Your capacity to earn is limited
Bankruptcy places many thresholds on your assets, income and windfall gains. If you earn more than the threshold and if your assets are worth more than the set threshold the extra money will be given to your creditors. You can check the current thresholds on the Australian Financial Security Authority Website.
Any lump sum windfalls, such as inheritances, lottery wins and your tax return will also be distributed to your creditors. If you want to get your finances back on track it’s best to do everything in your power to avoid bankruptcy.
What are my options to avoid Bankruptcy?
Thankfully there are a number of other debt relief options 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.
A Debt Agreement is another debt relief option which is successful in helping people avoid bankruptcy. For more information on debt relief options in Australia, Talk to An Aussie Who Cares.