Being a registered trustee firm, our clients often tell us about things that they’ve read online or advice that they’ve received about going bankrupt.
While this isn’t an exhaustive list, it’s some of the worst advice we’ve ever heard about going bankrupt in Australia.
Going bankrupt is for people who don’t have a job
Anyone can file for bankruptcy. In fact, most people do work; they just don’t have enough resources to pay back their debts.
You’re going bankrupt because of how much? That’s not enough!
How much is too much? $20,000 in debt might be too much for some but manageable for others. No magic number universally applies to everyone.
If you owe a debt that’s beyond your ability to pay, bankruptcy may be a smart choice both financially and personally – at the end of the day, it comes down to what you owe – comparative to your income, your living expenses and your assets.
Going bankrupt means that you can only earn a certain amount of money before everything else is ‘taken.’
If you earn over a certain amount after tax, then you might have to pay half of your income over this sum. Half – not all.
The threshold that applies to you will come down to the number of dependants you support, and any child support that you might have to pay is taken into account too.
We find that lots of people are surprised by the amount that they would need to pay in bankruptcy. That’s because the figure is often lower than what people imagine it to be.
Let’s look at an example; If you earn around $85,000 before tax each year and have no dependants, your payments in bankruptcy might be a little as $360 each month. The rest of your income would then be yours to keep.
Now imagine if you owed $60,000 on credit cards and personal loans. Your minimum monthly repayments on that level of debt would probably be around $1,500. In this situation, bankruptcy would free up more than $1,100 per month, which is a huge saving, not to mention that you’d no longer owe $60,000 in debt.
To learn more about income contributions and bankruptcy watch our handy video below.
If you’re going bankrupt, be prepared to lose everything you own, including the shirt off your back
The law protects many of your assets, including clothes, household goods and furniture, tools of trade (up to a limit), superannuation policies and compensation payouts.
It also protects vehicles assets, provided that your financial interest falls within the dollar value specified by the Bankruptcy Act. But in our experience, people often worry needlessly about their cars when going bankrupt. Our video on vehicles and bankruptcy explains why.
Going bankrupt? Then you’ll definitely lose your house
While property isn’t a protected asset, there are still options.
Every situation is different, but our animated video provides a thorough overview of how it can sometimes be possible to retain property in bankruptcy.
If you’re going bankrupt it’s because you’ve failed; financially, personally and morally
Bankruptcy is far from a personal failure – if anything, asking for help so that you can move forward with your life takes a lot of strength and courage.
It’s also not a moral decision. Going bankrupt is a valid, legal option designed to provide a legitimate safety guard for people who have hit troubled times. It’s not a ‘get out of jail free’ card.
Going bankrupt will ruin your financial future, and you’ll never, ever, be able to borrow again
If anything, bankruptcy may improve your long-term credit rating.
Think about it this way; going bankrupt may enhance your cash flow position. Your risk of defaulting on mortgage payments or rent may reduce in comparison to your situation before going bankrupt. You might even be able to save some of your money!
While there will be a temporary record on your credit rating, it’ll only be there for 5 years, after that your credit report will be free of any information regarding your bankruptcy.
Your ability to get credit in the future will depend on your individual circumstances, which will include your income, your ability to pay back what you want to borrow, the number of dependants you support, your age, your recent payment history and savings – especially if you’re applying for a mortgage.
We’ve made a video about your credit report, the NPII and borrowing after bankruptcy. Check it out.
You won’t be able to travel overseas at all or only for work purposes if you’re going bankrupt
One of the biggest bankruptcy myths around! Whether it’s for personal or professional travel, your trustee can grant you permission.
Requesting permission from your trustee is easy enough to do and typically requires you to complete a form and submit details of your proposed itinerary for your trustee to review.
To learn what a trustee takes into account when you request permission, watch our video on travel.
Going bankrupt on your own is too hard, and you should pay someone to complete and lodge your paperwork for you
There are lots of companies looking to charge you fees for lodging bankruptcy paperwork. Hardly any of them will tell you that it’s possible to do it yourself FOR FREE.
If you’ve spoken with such a company already, we recommend that you read our post on FREE BANKRUPTCY.
You’ll likely save yourself a lot of money by doing so.
The bottom line
As you’re probably starting to understand, there’s a lot of sweeping statements and inaccurate information out there regarding bankruptcy.
This presents a real problem for people who are thinking about going bankrupt. Particularly when such information makes it difficult to know what’s real vs hyperbole.