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Posted by Revive Financial on Aug 11, 2023 4:20:11 PM

When you’re in financial trouble, it can feel like an elephant on your back — like a huge burden, you cannot shift.

It can also leave you feeling so completely out of control it may seem like conceding defeat in the form of personal bankruptcy is your only option. However, while bankruptcy filing can be the best option in many cases, it isn’t always.

So, before you rush into bankruptcy, let’s look at the process, including how to declare bankruptcy yourself in Australia and the alternatives available to you. With this information, you can make the best financial decision for your situation.

Are You Actually in Financial Trouble?

A few untimely bills can leave us feeling like our finances are out of control. But before you throw your hands up in despair, it’s important to check whether your finances really are past the point of no return.

Here are three questions to help you determine if you’ve become financially insolvent:

  1. Are you unable to pay your mortgage?
  2. Do you have credit card debts you cannot pay, or are you only making minimum interest repayments?
  3. Is your weekly income not enough to meet your day-to-day living expenses?

If you answered ‘yes’ to any of these three questions, it likely indicates that your financial situation needs immediate attention.

I’m In Financial Trouble – What Options Do I Have?

Several options are available to pull yourself out of financial insolvency.

These include:

  • Informal debt negotiations
  • Personal insolvency agreements
  • Debt agreements
  • Declaring bankruptcy

Let’s look at each in more detail.

Informal debt negotiations

Instead of defaulting on your loans immediately, it’s always worth negotiating with your creditors to see if you can reduce the amount owing or lower the interest rate you’re paying on your debt.

When you reach out to them, lenders are often more willing to work with you and come to an agreement that eases the financial pressure. For example, banks are often open to negotiating over credit card debt and mortgage repayments and offering a repayment plan.

The reality is that most lenders would rather receive a small portion of what you owe over nothing at all.


Debt agreements

Debt agreements are like informal debt negotiations. However, they’re more formal and involve a legally binding arrangement with your creditor.

A debt agreement involves your creditors recognising that you cannot pay your current debts in full and agreeing to accept an amount of money you can afford. You then pay this over a period of time to settle your debts.

One thing you need to consider with a debt agreement is that it isn’t without consequences, including that it will be listed on your credit file for five years or more.

Declaring bankruptcy

Bankruptcy is the formal process of separating yourself from your debt obligations. When you declare bankruptcy, you no longer have to pay back most of the unsecured debts you owe (including tax debts), and debt collectors stop contacting you.

If you have no way of paying back your creditors, this is often your final option.

But while it does get you out of your obligations and provide debt relief, secured debt can still be pursued, and some debts, such as student loan debt, aren't written off. It can also affect your credit report, making it more difficult to borrow money in the future.

There are several other negative consequences of bankruptcy, including your name on the National Personal Insolvency Index. However, they can usually be managed.

Losing your home is a common concern, but it’s one of the biggest bankruptcy myths in most cases, you're able to keep it.

Okay, I Need to File for Bankruptcy – What Do I Do?

Declaring bankruptcy under bankruptcy law can seem like an intimidating process filled with financial documents, forms and criteria. In reality, filing for bankruptcy and the bankruptcy process is relatively simple.

Here’s how to file bankruptcy in Australia:

  1. Complete a debtor’s petition form, completing all relevant sections fully.
  2. Complete a statement of affairs form, completing all applicable sections fully.
  3. Ensure you’ve read, understood and signed the prescribed information in the debtor’s petition form.
  4. Send your application to the Australian Financial Security Authority (AFSA).

Bankruptcy typically lasts for three years and one day, plus two years after bankruptcy discharge (generally 5 years in total). It can be extended to up to eight years in some circumstances, for example, if you don't comply with your bankruptcy trustee.

Bankruptcy is a New Beginning – Your Next Step to Financial Freedom

Once you go through bankruptcy, that big financial burden disappears leaving you much lighter and free to focus on building a brighter and more stable future for yourself.

Thinking with a level head is crucial to getting back to financial freedom. As this can be very difficult when you’re under immense financial pressure, we recommend seeking advice and credit counselling from a qualified expert who can assess your financial position and help you determine your best options.

Are you in financial trouble and considering filing bankruptcy? Get in touch with our experts today on 1800 534 534 for free, confidential advice and credit counselling. For more information on bankruptcy, check out our bankruptcy page.

Topics: Bankruptcy, Tax Debt, Debt Agreements, Personal Debt, Recent Articles, advice, Australia, personal bankruptcy, how to file, debt negotiations, unsecured debt, secured debt

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