In cases where you have tried everything but still has failed to get out of debt. Then bankruptcy is the only option. Bankruptcy is a big step that should be taken after good consultation with financial advisors who know your financial position better. This is because bankruptcy has its own pros and cons that need to be considered. However, the biggest advantage of bankruptcy is that you will no longer be liable to pay debts which give you a new beginning.
The most common reasons for bankruptcy according to AFSA are excessive use of credit cards, illness, unemployment, gambling and more. Whatever the reason is there are two ways that can lead to bankruptcy in Australia. Before declaring bankrupt, the first thing to consider is whether you can afford to pay off your credit card debt or not. One is where you can voluntary apply for bankruptcy knowing that you have no other option and another is where the creditors appeal to the court to declare you bankrupt. There is no minimum amount that is needed to declare yourself bankrupt however if the creditors are making you bankrupt then at least the debt has to be of $5000 or more. The bankruptcy petition can be rejected if the court finds out that you can pay the creditor but are choosing not to or if there is any reason the court will give you in writing its reasons for rejection.
There are few forms that have to be filled with AFSA in Australia, in order to declare bankruptcy. You have to declare all the assets that you have or will receive during the bankruptcy phase. Then a trustee is appointed by AFSA who looks after all your financial affairs. They may also charge a fee for this trustee service. The individual comes under the obligation of providing all documents that the trustee may ask for instance, financial statements. 5 Things to Consider:
The fact that you have been bankrupt will continue to appear on your credit report for 5 years, which means obtaining credit can be difficult. Your credit score will also get affected as it will decrease due to bankruptcy, however you can always increase it later on. Also the thing to consider is that if you don’t file for bankruptcy and your debts keep on increasing over time your credit score then too will be negatively affected.
Bankruptcy can lead to loss of some assets whose value is higher than a specified amount. This includes car or house. Ordinary assets such as television or furniture are not taken by the bank. But this too depends on their monetary value. Personal luxury items like jewellery or inheritance can also be lost. A person is allowed to keep minimum amount of income that is needed for living in their bank account. A bankrupt person has no restriction on the amount of income they earn or save. However, if this amount increases a specified income bracket then they will be liable to pay trustee the money in order to pay off creditors.
Moreover, bankruptcy can lead to difficulties getting employed. As all jobs look for employees with good background financially too. During the term of bankruptcy a bankrupt person cannot be a director of any company and cannot get involved in the management of the company without the permission of the court.
Furthermore, it should be noted that bankruptcy does not means that all of your debts have been null. It does cover some unsecured debts for example credit cards. However, there are other debts which you’re still liable to pay like court fines, penalties. In addition any debts that are incurred after the declaration of bankruptcy also have to be paid.
In some cases the bankrupt person can also get some other person into trouble. This happens if joint loans, where the other person becomes liable to pay. If the other person too is bankrupt then they should include debt in both bankruptcies. Other possible reason can be if someone gave guarantee or the payment of money. Then the guarantor becomes liable to pay backs the money.
The most important thing to consider is that bankruptcy means that people lose their decision making power. This is partly given to the trustee and partly to the court. There is no privacy as all financial information has to be shared with your trustee. Travelling abroad also becomes complicated as the bankrupt person needs to seek permission from the trustee. The trustee has the right to further question in order to clarify things.
