If you’re struggling with severe debt, declaring bankruptcy may be something you’re considering. Many people view it as an easy way to deal with bad debt, however years of experience in the finance industry has shown us that bankruptcy should always be the last resort.
We understand dealing with severe debt is super stressful, with debt collectors chasing you for money, you’re probably feeling overwhelmed and don’t know where to turn. Maybe you feel like declaring bankruptcy is your only option?
While we appreciate every situation is different, we know the huge impact declaring bankruptcy can have on an individual, and at Fix My Credit we’d like you to explore every possible option before you make this big financial decision.
Bankruptcy is a legal process that an individual or business can go through to have their debts forgiven or restructured because they are unable to pay them. It’s governed by the Bankruptcy Act 1966 and is regulated by the Australian Financial Security Authority (AFSI).
When you declare bankruptcy, a trustee will take control of your finances. Creditors will no longer be able to take legal action against you to retrieve what money is owed.
To become bankrupt you will need to lodge a debtor’s petition, or alternatively a creditor can also declare you bankrupt. There isn’t a minimum amount of debt to voluntarily become bankrupt, however a creditor can only make you bankrupt if you owe $5,000 or more.
While it may seem like a simple option to get rid of your debts, there are serious implications for anyone declaring bankruptcy. Here are our top 5 reasons you should avoid bankruptcy.
Reason #1 – Your assets may be sold
At the start of the bankruptcy process you will need to declare all your assets. When the trustee takes over your financial affairs, they may claim and sell some of your assets and use the money to repay your creditors.
Your trustee may be able to claim your real estate, vehicles, tools, bank balances and more. If you don’t declare all your assets, penalties apply.
Reason #2 – You could lose your job
While you may think your debt is sorted, your ability to earn money could be impacted if you declare bankruptcy. Some professionals such as real estate agents, police officers, trades and financial planners are not allowed to work after declaring bankruptcy.
Reason #3 – Getting future credit may be difficult
Credit reporting agencies will keep the record of your bankruptcy for 5 years. Whenever you apply for credit over a certain amount, you will need to notify them that you have previously declared bankruptcy.
Reason #4 – Travelling overseas becomes more difficult
It might sound strange, but declaring bankruptcy can affect your ability to travel overseas. Whenever you want to leave Australia (while bankrupt) you will need to get written permission from your trustee.
Reason #5 – Bankruptcy doesn’t go away overnight
Bankruptcy normally lasts for three years, but it will appear on your credit file for 5 years, with the last 2 years being called ‘discharged bankrupt’. Your name will also appear on the National Personal Insolvency Index (NPII) forever.
In many cases, declaring bankruptcy is only one of the available options. At Fix My Credit we work with clients on a daily basis to work out sustainable solutions to relieve their debt and avoid bankruptcy.
We offer debt solutions and debt negotiations to help you dig yourself out of debt and get back on your feet sooner rather than later.
For more information, or to find out how Fix My Credit can help, contact our team on 1300 785 214 or send a request online.
Please note: This information is general, if you’d like specific information please contact our friendly team online or by calling 1300 785 214.
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