Is bankruptcy the answer?

Women with CentsBlog, Debt

“Hi Tash, I am considering filling for bankruptcy – my investment property was taken by the bank and sold for peanuts. I have $40k in debts. The constant pressure and worry about money is making me sick. At least this way I can start fresh – thoughts?”

I am sorry to hear you have been having such a bad run. I can understand why voluntary bankruptcy may look like the answer to all your financial problems but you should know that it’s not quite that straight-forward. For example, did you know that if you earn over a certain amount you are still required to make payments to your creditors even after you’re declared bankrupt?

Before you make your decision, here are some things about bankruptcy to be mindful of, and some suggestions on where to go from here.

1. Someone is appointed to manage your bankruptcy

When you’re declared bankrupt a trustee is appointed to manage your bankruptcy. They work with you and those you owe money to, and you have an obligation to provide your information to them including bank statements.

2. Being bankrupt can affect your future credit

Your bankruptcy is listed on your credit report for two years from the date your bankruptcy ends or up to five years from the date you became bankrupt. So when your credit report is checked (for example when you apply for a loan or a credit card) your bankruptcy will be noted, which can make it hard to get loans or even rent.

3. Your possessions may be sold

You may be able to keep certain possessions, like ordinary household goods, but the trustee can sell your assets, for example your house.

4. Your bankruptcy will become public record

When you’re declared bankrupt your name will appear permanently on the National Personal Insolvency Index which is a searchable public register in Australia.

5. You may not be able to travel

You need to get express permission from your trustee for any overseas travel.

6. It can affect your ability to earn an income or seek employment

If you earn over a set amount, you may still need to make payments despite your bankruptcy. There may also be restrictions when it comes to employment and business, for example you may not be able to be a director of a company or work in certain professions. 

If you’re struggling with debts, I strongly advise you to seek some personal advice. There can be options, other than bankruptcy, to help you sort out your financial situation. A free financial counsellor  can help stop the harassing phone calls, can explain available options and help you work out a plan – they may even be able to negotiate your debts on your behalf and help you avoid the need for bankruptcy! The National Debt Hotline is another great resource that’s worth a look.

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The information provided by Women with Cents is general in nature. It doesn’t take into account your objectives, personal financial situation or needs. Think of it as educational material in which to help you make more-informed decisions. We recommend you obtain financial, tax and credit advice specific to your situation before making any investments or financial decisions.

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