When Aussies get into financial strife, their minds immediately jump to bankruptcy. Whilst bankruptcy can be an option for you, there are other options you should first consider before you jump on board the bankruptcy boat. Bankruptcy should be considered after you have sought out good sound advice about all your options and have the support we at Revive can provide. We can guide you throughout the process from start to finish, leaving you with no debt and no stress!
Bankruptcy can be life changing, but it can also provide a solid foundation from which to rebuild your wealth and may also be the right debt relief solution if you cannot come to a satisfactory arrangement with your creditors. It is sensible though, to review whether there are other options that suit you to avoid bankruptcy.
We have put together five reasons to avoid bankruptcy to help you decide on whether bankruptcy is a fit for you or not.
1. Bankruptcy May Affect Your Employment
Losing your job and income is the last thing you need, especially if you are already experiencing financial hardship. 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. These include, real estate agents, financial planners, certain trade professions and the police service. Generally, if your role requires you to access the trust bank account of the business, you may not be able to retain your employment whilst a bankrupt.
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 you manage a company, you will no longer be able to whilst a bankrupt. Therefore, if you require your company to continue to operate; bankruptcy may not be the right path for you.
If bankruptcy is likely to affect your employment and/or director position, you should look for other debt solutions to avoid bankruptcy, such as a Debt Agreement or a Personal Insolvency Agreement.
2. You Could Lose Your Property
When you become bankrupt, your Bankruptcy Trustee becomes the owner of any share you have in property. Your trustee will then determine the most appropriate way to deal with your property. Most likely, the Trustee will arrange to sell the property with all proceeds going to your Bankrupt 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 solutions.
However, if bankruptcy is the path for you, Revive has solutions on how you can keep your property. Please visit our Bankruptcy page for further details.
3. It is a Long-Lasting Commitment
The period of bankruptcy (generally) is three years. It will remain on your credit file for a minimum of 5 years (the final 2 years will be noted as a discharged bankrupt) and your name will be on the National Personal Insolvency Index for life. This means the effect of bankruptcy can last past your discharge from bankrupt date; up to 5 years.
Once you have been discharged from your bankruptcy you will be free to apply for finance again without disclosing your status as a bankrupt, however, lenders are very cautious about lending money to discharged bankrupts! If you wanted to apply for a loan you might have to go through non-conforming lenders and pay a higher interest rate. Revive Financial can assist you with loans for bad credit.
If you are considering finance in a short period of time then bankruptcy may not suit you.
4. Bankruptcy Has Some On-going Obligations
During the term of bankruptcy, you will need to adhere to certain obligations you have as a bankrupt. These will require some time from you during the term of the bankruptcy to comply with your Trustee’s requests. For instance, if you want to travel overseas you must first seek permission from your Trustee. There is a fee of $150 (if your bankruptcy is administrated by the Public Trustee) and must be paid each time you apply. You also can not pursue any legal action without first consulting your Bankruptcy Trustee and must comply with your Trustee’s requests for information or records. Bankruptcy takes away your ability to make decisions concerning your financial life. If you can avoid bankruptcy, you will also avoid these restrictions.
5. Bankruptcy Will Impact Your Capacity to Earn
There are specific limitations on certain assets you can retain and also thresholds set on your income 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 Bankrupt Estate. You may only retain motor vehicles and tools of trade up to a certain value before your trustee will realise the difference. View current thresholds
Your Bankrupt 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 before considering 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 IX Debt Agreement. A Part IX Debt Agreement is a Bankruptcy Act 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. There are thresholds you will need to meet before you are able to undertake a Part IX Agreement.
If you do not meet the criteria for a Part IX Debt Agreement, you can consider a Part X, Personal Insolvency Agreement (PIA). A PIA is similar to a Part IX Agreement except there are no threshold to undertake a Part X. However, the cost to set up a Part X can be more expensive.
For more information on debt relief options in Australia, give us a call on 1800 534 534 and an experienced Case Manager will work with you to find a debt relief solution tailored for specifically for your situation.
For more information on Bankruptcy, check out our Bankruptcy page.
