When you are being chased to pay bills you can’t afford, you can feel stressed and lonely. Bankruptcy may feel like a solution to make your problems go away. However, bankruptcy has major consequences on your life now and into the future. We recommend you get professional financial advice before taking this step.
In this article, we’ll look at some things you could do (and some things you should not do!) now to help yourself. We will also take a look at the part a bankruptcy trustee will play in your life during the bankruptcy process and in the years afterwards and we’ll provide the best financial guidance for you.
Are you insolvent?
It may be you are having a financially tough period and can’t spend money on life’s luxuries, or are you insolvent and should you consider bankruptcy?
These are some of the warning signs you may be insolvent:
- You have received demands for payment from creditors
- You have been contacted by debt collectors
- You are behind on your mortgage payments
- You have borrowed money from friends or family
- Your next salary payment won’t cover your outstanding debts
These are indicators you should take action immediately. If you “wait to see if things will get better”, they won’t!
Things to avoid!
When you are struggling financially, there are many tempting offers out there. Be aware though, any form of credit is increasing your total debt and unless you are certain you can make repayments you are making your situation worse!
- Buy now, pay later
Buy now, pay later schemes allow you to purchase a product and pay in the future in instalments. This may be convenient if you know you will have the funds to cover the agreed repayments but problematic and expensive if you already have financial problems. - Beware the fees
The service may have no interest charges but will probably charge fees, such as monthly fees plus late fees for missed repayments - Interest-free deals
Different to Buy now, pay later; when the interest-free period ends you will have to pay interest on any outstanding debt. Although the interest-free credit may seem a good deal, again watch out for fees which may include set-up fees, fixed monthly fees and late or service fees. - Rent to buy schemes
Renting household appliances or luxury goods such as televisions and computers may seem like an attractive option, with no worries about maintenance costs as long as you are renting. This can end up costing a lot more than buying outright if you rent over a long period. - Payday loans
A cash injection to tide you over until payday. These often come with high interest rates and high penalty fees if you are unable to meet the agreed repayments. - Loans, in general
Any loan will include a repayment agreement. If you are unable to pay off the debt as agreed you may be subject to high interest rates and late-payment fees.
Steps you can take now
There are things you can do now to help you improve your financial situation and enable you to start repaying your debts. As with any insolvent situation, a solution must include increased income or decreased costs, or both!
- Cut costs
Our basic needs for survival are food and shelter. While our modern lifestyle choices include more than this, you may consider ending gym memberships, not eating out or ordering takeaway food and not purchasing electronic goods until you are solvent again. You could also bulk-buy groceries if they are on special offer and take your own cup, to claim the discount, if you must buy a coffee! - Sell and downsize
You could sell things you no longer need. Have a garage sale to clear out old belongings and boost your finances. You could swap expensive items, such as a car or motorcycle for smaller, cheaper options. - Review deals and check the competition
Look at your providers for power, internet, banking and insurance. You may find alternative, better deals. - Earn more!
Ask your employer for overtime or take on part-time work to improve your income. - Contact your creditors
You may find your creditors receptive to options to repay their debt. They may consider giving you longer to pay or decreasing the interest rate or fees they charge. - Ask for help
A professional financial advisor will assess your situation and may offer other solutions to help your finances recover. They will certainly negotiate with your creditors on your behalf!
What does bankruptcy mean for me?
Becoming bankrupt means you are legally declared unable to settle your debts. You are no longer required to pay off most debts and your creditors will stop pursuing you for payment. This can allow you to start afresh and relieve the pressure and stress of your financial problems.
You can voluntarily declare yourself bankrupt by completing a bankruptcy form or a creditor may issue a sequestration order which will make you bankrupt via the courts.
The bankruptcy trustee
The bankruptcy process in Australia is managed by the Australian Financial Security Authority (AFSA). All bankruptcy trustees must be registered with AFSA. You may nominate your own registered trustee or one will be nominated for you.
Your trustee will manage your bankruptcy. They will sell assets to repay some of your debts and, during the period you are formally bankrupt (normally 3 years and 1 day) you have obligations and restrictions and must inform them of certain changes to your circumstances.
What assets will be sold?
Your bankruptcy trustee is responsible for paying off as much of your outstanding debts as possible. To achieve this they will seize and sell some of your assets:
- Your home
The trustee will become the owner of any houses or property you own. If you are the joint owner of a property, the trustee controls your share. The trustee will sell the property to help settle your debts. If the house still has a mortgage this is a secured debt and the lender may repossess the property and sell it. - Your car
You may be able to keep a vehicle, including cars, motorcycles, bicycles and boats as long as it is below a certain value and it is your main means of transport. If it falls above the set value or if you have more than one vehicle and their joint value is higher than the set amount, the trustee can claim and sell them.As with property, above, if you have an outstanding loan secured against the car, the lender may take possession and sell the vehicle. - Cash
The trustee can seize money held in bank accounts but will leave you with enough for modest living expenses. - Other assets
You may keep the tools you need for your work, up to a set value. Generally, you will keep your household possessions
What are the consequences of bankruptcy?
When the court proceedings are over and for the duration of your bankruptcy, the trustee will continue to manage your bankruptcy and you must keep them informed of certain situations. There are other restrictions and consequences:
- Unsecured debts
Although your debts are covered, you may choose to continue to repay your electricity supplier to ensure you receive a power supply, for instance. - Employment and earnings
You are not allowed to be a director or manager of a business but you may work. If your earnings exceed a set value, you may have to make payments to the trustee to settle outstanding debts. - Credit applications
When you seek approval for credit over a set value you must notify the lender of your bankrupt status. - Overseas travel
You may not travel overseas unless you have the trustee’s written consent. - A permanent record
Your personal details will be listed on a permanent, publicly-accessible record, the National Personal Insolvency Index (NPII). The details include your name (including any aliases or previous names) address and date of birth.
The trustee has control of your finances throughout the bankruptcy. You should ask your financial advisor for more information on selecting a bankruptcy trustee.
Corporate Lifeline for the best financial advice
At Corporate Lifeline, we believe there’s a solution for every financial problem. Through years of experience, we know there are no one-size-fits-all solutions when it comes to money. We have helped many people in a similar situation to you. Our friendly, expert team will support you and help to find the best financial solutions for you.
If it comes down to it, bankruptcy doesn’t mean failure. With our help, it can be a new start for you.
Corporate Lifeline is based in Sydney but has financial experts across Australia. We’ve already helped hundreds of individuals and companies through financial problems and we can help you, too.
Contact Corporate Lifeline today.