Why do people file for Bankruptcy?

Bankruptcy has been designed to provide you with protection and a fresh start

The reality is that putting off dealing with your debt may not only cost you more now but also the money you need to live in the future. If you’ve tried a debt relief strategy that has failed, bankruptcy may be a beneficial alternative.

Isn’t bankruptcy admitting I have failed?

Absolutely not.

Bankruptcy is a legitimate and formal option that’s available to help you resolve your debt. It’s not a moral decision, nor is it a decision that you should be terrified of making. While there are consequences to bankruptcy, there are also many benefits.

There are many reasons why people file for bankruptcy. They can include over-commitment of credit, medical reasons, the breakdown of a relationship, loss of employment or even an investment gone wrong. It’s simply one of a number of financial decisions or options available when you’re truly unable to honour your debt.

We aren’t recommending bankruptcy as a casual solution – most people don’t use bankruptcy that way. What we are saying, though, is that bankruptcy isn’t the “bad guy” that it’s generally made out to be and sometimes it can be the best solution to meet the needs of both you and your creditors.

“I moved interstate away from the majority of my family and friends. Although I had a good job it was easy to get credit and live beyond our means. Being away from family and friends I found myself becoming lonely and impulse spending seemed to fill that void. Buying clothes, household items, and going to costly social events provided me with fulfilment but the growing debt pulled me further into depression. Within seven years I had a $100K in credit card debt.’’

Michelle, NSW

When bankruptcy could be the right decision for you

You’re living off your credit cards

Lots of people have resorted to using credit cards for their most basic of needs, such as groceries and petrol. If this sounds familiar, you’ll recognise the cycle. Once you’re on that uphill treadmill of debt, it’s difficult to get off.

“Too many credit card debts, it was like paddling up stream. We were making the payments but not getting anywhere and I realised we were only going to struggle more and more. I became very depressed”

Jane, NSW

You’re paying one credit card with another

While moving debt from one credit card to another to take advantage of interest-free periods can be a smart tactic, paying one credit card with another is not. You’re really only transferring your debt and buying yourself some more time – you’re not reducing it. Basically, you’re robbing Peter to pay Paul.

We had lots of personal loans and credit cards. We found since having a house loan people would throw money at us. We just kept getting more and more in debt and using one credit card to pay the other. We found out we were going to have another mouth to feed and that was what pushed us over the edge. I was scared and depressed, my husband and I argued a lot, it felt like everything was falling apart

Jade, VIC

You’re missing payments

Missing payments – for car loans, home loans, credit cards or any other kinds of debt – should always be a red flag. Not only does the amount that you owe increase (the “principal”), but less and less of your payments (when you’re able to make them) are going towards the loan, and more and more is paying interest and late fees. If this is you, you’ll find you’re going nowhere fast.

Missing payments also means that you’re less able to negotiate lower interest rates with your lender, which can help set yourself up for success over the long term.

‘‘I had a lot of credit card debt, and a bad investment where my repayments had doubled. I had sold the apartment, but still couldn’t get on top of the finances. I was avoiding the phone, constantly stressed, and feeling a bit hopeless.’’

Robert, NSW

You’re working multiple jobs

For many people, an extra income can diminish their debt. For some, however, this hasn’t been the case. Despite working multiple jobs, their income fails to put a decent-sized dent in their debt. If you’re working an additional 10 hours per week and getting nowhere, bankruptcy could be a suitable option to consider.

“The financial stress I was under at the time was unbearable. Everybody was after me for payment. I even went to financial advisors who could not really help me without adding more stress. My employment contract at the time was also not renewed which added even more pressure.”

Achim, QLD

Debt-related stress is overwhelming you

With creditors calling on the phone, sending bills in the mail and chasing you online, there is nowhere to escape. It’s no surprise that you toss and turn all night, find it hard to concentrate, and become short and snappy with those you love.

’The phone calls regarding late payments and the fact that I could not talk to anyone as I was the one that got us into this situation…. I was very emotional and had the thoughts of why stay on this planet. When it finally came to a head, the relief was enormous and the fact that my family would stand by me, I should have spoken up earlier and received the help.”

Susan, VIC

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