Beware of bankruptcy     

It’s not a quick fix

When you’re buried deep in a debt hole, you’re desperate for a solution. Declaring bankruptcy may seem like a tempting way to get yourself off the debt rollercoaster. But what might seem like a quick fix to help you escape your debts can have some serious and long term consequences.

What is bankruptcy?

  • According to Money Smart, bankruptcy is a process where you are legally declared unable to meet your debts. You’ll be released from most of your debts and debt collectors will stop contacting you.
  • Watch AFSA’s video on the consequences of bankruptcy, and how while it can offer you a fresh start, it does come with some serious consequences.
  • As advised by Money Smart, you need to consider carefully whether declaring bankruptcy is the right step for you. It can permanently affect whether you can get credit in the future.

Applying for bankruptcy

  • You can apply to become bankrupt voluntarily if you have a debt of any amount you cannot pay.
  • The Australian Financial Security Authority will advise you of when you are officially bankrupt. They will appoint a trustee to manage your financial affairs.
  • Bankruptcy official lasts for three years from the day it is declared but consequences can be permanent.

The big pitfalls

The significant consequences, of Bankruptcy include:-

  • making it difficult for you to obtain credit for a considerable time
  • your bankruptcy will appear on your credit report for five years, and on a public record known as the National Personal Insolvency Index for life!
  • it limits your future employment options. You can’t operate a business, be a director of a company or work in particular trades and professions
  • the likely loss of some of your assets including your house and a car worth more than $7,700
  • it affects your ability to travel overseas – you must request permission from your trustee.
  • you’ll probably still need to continue to pay your Child support, Centrelink and Higher Education debts, and any court fines
  • while you are allowed to earn an income, if it exceeds the amount applicable to you, you will need to pay contributions to your trustee for your creditors.

Beware of debt agreements

  • Some debt management companies suggest something called a Part IX Debt Agreement as an alternative to bankruptcy.
  • But be warned – the truth is this is in fact a type of bankruptcy and will remain on your credit report and the National Personal Insolvency Index for up to five years.
  • A debt agreement may also leave you worse off because of the very high fees these debt agencies often charge you for their services. 

So – what are the alternatives?

You need to act quickly if you can’t pay your debts and you wish to avoid bankruptcy. There’s a few steps you can take to get help.

  • The first thing to do when you can’t make your repayments is to talk to your credit provider and try to reach a revised repayment agreement with them.
  • You could also ask to apply for a hardship variation, which will give you longer to repay your debt, in smaller repayments without costing you more in the long run.
  • You can also get in touch with a financial counsellor, who can help you assess your financial situation and devise a plan to get you out of trouble.
  • Make an appointment to talk to Centrelink, or use their online payment finder. Ensure you’re registered for any help and benefits you may be entitled to.

We know it’s tough out there

At City Finance, we’re different to other lenders. We understand how tough it can be to make ends meet and are here to help. City Finance takes the time to get to know you, and focus on your unique situation. We then tailor a loan and repayments around you and your needs.

Whether you need new finance or want to discuss making changes to your existing arrangements, call us on 1300 34 62 62 or pop into your local branch today for a chat with our friendly staff, and together we’ll work on a solution to see you through.

This article is provided as a guide only and does not constitute financial advice. We encourage you to do your own research through the Australian Financial Security Authority and Moneysmart to reach a debt management solution that is appropriate for you.”