“Success is not measured by what you accomplish, but by the opposition you have encountered and the courage with which you

have maintained the struggle against overwhelming odds”

– Orison Swett Marden

Peter and Molly’s background: Peter (Pete) had been a businessman for more than 30 years.

He and Molly had spent years creating a string of successful small businesses. They were quickly approaching the age of retirement, so they decided that it was time to sell up and pay off the mortgage.

Neither Pete nor Molly had any money in super. After they paid their mortgage off, they decided to invest the leftover cash from the sale of the businesses.

The debt: Pete invested in agribusiness CedarCo. A substantial part of his investment was funded by CedarCo’s lending arm, CedarCo Finance.

About a year after investing in the agriculture business, CedarCo Finance was liquidated. Investors that had used CedarCo Finance to finance part of their investments were suddenly being chased for full payment.

He and Molly tried to fight the bill, even joining a class action. However 5 years passed. The interest incurred, combined with the legal costs, saw Pete’s debt balloon to $800,000.

The decision to file for bankruptcy: Pete and Molly’s home was valued at $600,000, and they owned it outright. As equal co owner’s, they each owned half of the property.

They had tried to refinance. But given their age, lack of income and unsecured debt level, they were unable to.

The investment had been taken out in Pete’s name, so only he owed the debt. After careful consideration, Pete decided to file for bankruptcy.

Here’s what bankruptcy did for Pete and Molly

  • Pete’s $800,000 of unsecured debt was cleared
  • Pete kept all of his household contents and furniture (he would have also been able to keep his super, if he had any), as they were protected in bankruptcy
    more on protected property
  • Pete was able to keep his car as it was worth less than the threshold and thus protected under bankruptcy
    more on motor vehicles
  • The trustee worked out that Pete wasn’t earning enough to have to make a payment from his earnings in bankruptcy, as his income was being derived from the aged pension only
    more on income
  • Pete’s interest in the property wasn’t protected in bankruptcy. This meant it vested in his trustee. After the market value of the property was established, the trustee determined that Pete’s interest in the equity came to around $300,000. Pete’s trustee wrote to Molly to see if she wanted to purchase the trustee’s interest, however Molly had no access to the funds that would be needed to retain the property. Molly chose to join the trustee in selling the house. After cost of sales, Molly was able to keep her share of the proceeds. The trustee used Pete’s share of the sale proceeds to distribute a dividend to Pete’s unsecured creditors
    more on property
  • Using her share of the proceeds, Molly was able to purchase an apartment outright. The couple moved into the apartment and enjoyed life mortgage-free
  • Both Pete and Molly were able to remain retired. Bankruptcy meant that they didn’t have to continue working for the rest of their lives to pay off the debt. Instead, they could slow down and enjoy well-earned time with their grandchildren

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