When Aussies get into financial strife, their minds immediately jump to bankruptcy. While bankruptcy can be an option for you, there are other options you should first consider before you jump on board the bankruptcy boat. Bankruptcy is a serious step, and it should only be considered after you've sought sound advice about all your alternatives 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—it provides a solid foundation to rebuild your financial life if you're unable to reach a satisfactory arrangement with your creditors. However, it’s wise to review whether other options may better suit your situation, potentially helping you avoid the lasting impacts of bankruptcy.
We have put together five reasons to avoid bankruptcy to help you decide on whether bankruptcy is a fit for you.
Losing your job and income is the last thing you need, especially if you're 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 access to a business’s trust account, you may be at risk of losing your job.
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 practise a particular trade.
If you manage a company, bankruptcy will prevent you from continuing in that role. 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 your position as a director, you should look for other debt solutions to avoid bankruptcy, such as a Part IX (9) Debt Agreement, an Informal Agreement, or a Part X (10) Personal Insolvency Agreement.
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 Financial has solutions on how you can keep your property.
Bankruptcy typically lasts three years, but its effects linger much longer. It remains on your credit file for at least five years and your name will appear 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 without disclosing your status as a bankrupt; however, lenders are very cautious about lending money to discharged bankrupts. If you want to apply for a loan you might have to go through non-conforming lenders and pay a higher interest rate.
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 cannot 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.
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.
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.
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 that is successful in helping people avoid bankruptcy is a Part IX (9) Debt Agreement. A Part IX (9) 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 (9) Agreement.
If you do not meet the criteria for a Part IX (9) Debt Agreement, you can consider a Part X (10) Personal Insolvency Agreement. A Part X (10) Personal Insolvency Agreement is similar to a Part IX (9) Agreement except there are no income thresholds. However, the cost to set it up can be more expensive.
For more information on debt relief options in Australia, give us a call on 1800 534 534 and an experienced Customer Success Specialist will work with you to find a debt relief solution tailored specifically to your situation.
For more information on Bankruptcy, check out our Bankruptcy page.