“Credit is the illusion of having means or a financial lifeline”

– Rohan Lamprecht

Beatrice and Luca’s background: Beatrice and Luca had been struggling with credit card debt for years, and it all started after the birth of their second child.

Beatrice was the higher income earner. As a result, the couple relied on credit cards to supplement the loss of her fulltime income when she was on maternity leave.

The debt: After Beatrice returned to work, the couple managed to make repayments on their credit cards. However, they also had to take additional childcare into account, which impacted on their ability to make repayments.

Their unsecured debt level continued to increase, and they began to rely on credit to make repayments. They used the available balances on some credit cards to make the minimum monthly repayments on others.

Within a few years the couple had accumulated around $160,000 of unsecured debt. Beatrice owed a total of $90,000, and Luca owed around $70,000.

The options for repayment: Beatrice and Luca didn’t own many assets, so they weren’t able to refinance the unsecured debt.

The decision to file for bankruptcy: Continuing on with their repayments became impossible once all of their credit cards were maxed out. After careful consideration, they both decided to file for bankruptcy.

Here’s what bankruptcy did for Beatrice and Luca

  • Beatrice and Luca cleared their entire unsecured debt of $160,000
  • They were able to retain the family car. They only had one vehicle, which was jointly owned. It had a market value of around $12,000. Because they both owned $6,000 of this vehicle, the asset was protected in bankruptcy. This is because their respective interests were less than the prescribed limit of $7,700
  • Beatrice and Luca didn’t lose any of their household contents, furniture or super as they were protected in bankruptcy
  • Luca was able to retain his entire wage. He was earning $65,000 per annum and was assessed as having two dependants; this meant that he wasn’t liable to contribute any of his earnings in bankruptcy
  • With reduced debt commitments, Beatrice and Luca were able to cover their living expenses and the cost of childcare
  • Their former minimum payments of around $3,000 a month were reduced to $367 a month. This is because: (a) Beatrice’s annual gross taxable salary was $100,000; (and (b) she also had use of a work vehicle, which was assessable as a fringe benefit under the Bankruptcy Act. Based on the calculations, her income contribution payments came to around $367 a month. This was a considerable drop for the couple – over $2,600 a month compared to their former minimum monthly repayments
  • Both Beatrice and Luca’s credit reports will be impaired for 5 years in total, and they received a listing on the NPII, the federally kept record of personal insolvency. However, they were adamant that they didn’t want to borrow again until they had completely cleared their debts
  • The strain on Beatrice and Luca’s marriage was removed. For the first time since having children, they were able to enjoy small treats and even go on the occasional date night without worrying about how to pay for everything
  • The couple were finally in a position to take their children on a family holiday, something they had been unable to do prior to bankruptcy