When thinking about starting a family we often have our rose-tinted glasses firmly on, presenting us with images of our sweet lil’ bubbas and stunning Insta-friendly nurseries. However, these glasses may obscure the practical realities of raising a young family and could potentially stop you from planning accordingly.
Taking time off work, paying for childcare and working part-time; the financial pressures a family faces can add to the many stresses of becoming first-time parents.
There are many reasons families might start getting into financial difficulty, often for no fault of their own. A redundancy, divorce or blending families can sometimes tip us over the edge when we least expect it.
Rest assured, there are options out there for those struggling to pay back debt. Some of these options include debt consolidation, payment arrangements, financial hardship and even personal insolvency options like Debt Agreements, Personal Insolvency Agreements and Bankruptcy. It’s not uncommon for people owing large amounts on credit cards, personal loans and even tax debt, to file for bankruptcy.
At the end of the day, your personal situation will determine the best steps to take when trying to resolve unmanageable debt.
An option that is often simultaneously feared and misunderstood is Bankruptcy. That’s because there are a lot of myths about bankruptcy and how it can impact your life. In a lot of cases those myths aren’t rooted in many facts. For some, bankruptcy can be the smartest or only choice and it can relieve the relentless financial pressure of crippling debts.
For those who think bankruptcy might be an option worth exploring, here are some facts you may not know:
- Becoming bankrupt is not a criminal offence so you will not go to jail just for becoming bankrupt
- Bankruptcy only lasts for three years and one day. After this period, you’re automatically discharged and released from your provable, unsecured debts like credit cards, unsecured personal loans and tax debts – to name a few
- Five years is the standard length of time that your bankruptcy will typically remain on your credit report
- Most tax debts owing to the ATO are discharged (wiped out) when you become bankrupt
- You can maintain a debit card and bank accounts during your bankruptcy, however, you won’t be able to maintain a credit card
- If you become bankrupt, your superannuation is typically protected. However, you’ll be unable to be a member of a self-managed super fund while you’re bankrupt
- The processing of filing for bankruptcy voluntarily only takes about one week. Also, it’s possible to go through the process of becoming bankrupt for free
- If you become bankrupt and have any joint debt like a joint personal loan with your partner for example, you’ll be covered but if your partner isn’t bankrupt too, they’ll still be liable to pay the loan
- If you own or acquire any assets that aren’t protected under the Bankruptcy Act during the three years and one day, they may become assets of your bankrupt estate. If you’re considering bankruptcy and own property, you might may want to seek further information on how property is treated in bankruptcy from a qualified source, like a Registered Bankruptcy Trustee
- Once bankrupt, you’ll need permission to travel overseas but obtaining consent isn’t difficult to do. It mostly comes down to you playing by the rules while you’re bankrupt. It can even be possible to get permission to relocate and live overseas
- It’s highly likely you’ll be able to rent a property while you’re bankrupt. Most of our clients don’t have an issue with this at all
- The eligibility criteria for voluntarily becoming bankrupt is that you’re either an Australian resident, you have a partnership or firm carrying out business in the country or that you have a house or dwelling in Australia. Contrary to popular belief, your creditors don’t have a say on whether you can become bankrupt
- When it comes to bankruptcy applications, we find the most common causes for applications not being processed tend to relate to paperwork not being completed correctly or because the application doesn’t make sense from a financial standpoint
- Your full salary will not be taken during your bankruptcy. Instead, there’s a legislative formula which determines if you’ll need to make some payments from your income during the three years and 1 day. The basic math of the formula is that you’ll need to pay half of your after-tax earnings above a certain after-tax amount each year. The amount (or threshold) relevant to you will depend on the number of dependants you support. As an example, for someone earning $100,000 gross taxable with one dependent under the bankruptcy act, they might need to pay around $2,600 per year from their income during bankruptcy. This amounts to around $50 per week.
- Nothing in the Bankruptcy Act expressly forbids you to work in specific job roles aside from being the director of a company as per the Corporations Act while you’re Bankrupt. There can be some jobs that have professional memberships, licences or internal policies relating to bankruptcy, so if you’re working in such a role, it’s important to do your research first. This may involve contacting the regulatory bodies of any professional memberships or licences you hold to determine if bankruptcy will have an impact on your employment. You may also need to review your employment contract. Should you find any clauses about bankruptcy or insolvency, you may need to seek further guidance from your employer
As any parent knows, raising a family is a mix of so many emotions, some of which can be felt in the space of a minute! If you can plan ahead, create a budget and have some money set aside for unplanned circumstances, this may reduce some of the stresses that could lie ahead.
If you’re in too deep already and think Bankruptcy might be worth exploring further, you’d be best to get in touch with licensed professionals, such as a Registered Bankruptcy Trustee or other suitably qualified insolvency practitioner.
With nearly a decade of personal insolvency experience up her sleeves, Lauren is a Consultant at Aravanis, one of Australia’s largest registered bankruptcy trustee firms. Aravanis is an award-winning bankruptcy firm offering free bankruptcy-related information that’s specific to your individual situation. If you’re looking for a more comprehensive outline of bankruptcy see article, what is bankruptcy, or call 1300 369 108.