Alternatives to Bankruptcy

In our ongoing mission to provide accurate bankruptcy information, we’re back to debunk another set of common bankruptcy myths. These misconceptions often deter individuals from exploring bankruptcy, even when it could provide them with much-needed relief. Our objective is to equip you with the right knowledge about bankruptcy, allowing you to make informed decisions toward the best financial solutions.

1. There Is No Shame in Filing for Bankruptcy
   The belief that filing for bankruptcy reflects poorly on a person is simply untrue. In reality, the majority of people who file for bankruptcy are hardworking individuals navigating severe financial challenges. Australia’s bankruptcy laws exist to provide relief and a pathway to a fresh start for those facing overwhelming financial difficulties. Financial hardships can affect anyone, regardless of their background or circumstances. Filing for bankruptcy is not a reflection of someone’s character or financial responsibility. On the contrary, it can be a courageous, responsible, and honest decision—one that prioritises securing a stable future for themselves and their family. Recognising the need for help and taking steps to address financial distress is an act of strength, not failure. Bankruptcy is more common than many realise, and it’s an essential tool designed to help individuals regain control and move forward with dignity.

2. You can only go bankrupt once in a lifetime
   Contrary to popular belief, bankruptcy isn’t a once-in-a-lifetime event. Circumstances can lead individuals to seek bankruptcy relief multiple times. Life can throw unexpected challenges our way, such as job loss, business failure, divorce, illness, unforeseen expenses, or financial setbacks. Unfortunately, these circumstances can arise more than once in a person’s lifetime.

3. You can pick and choose which debts and property to list in your bankruptcy
   This isn’t true either. It’s against the law to selectively choose which debts and property to include in a bankruptcy. When petitioning for bankruptcy, all property and debts must be listed and disclosed to your Bankruptcy Trustee. Some people may wish to exclude a debt because they want to continue making payments, e.g.: a car loan, and the vehicle is used as security for the loan. A person can continue making monthly payments as long as the secured creditor accepts them. However, it must still be disclosed during the bankruptcy process.

4. Even if you go bankrupt, all creditors will still harass you and your family
   This is not accurate. When your bankruptcy petition is accepted, the Australian Financial Security Authority (AFSA) immediately notifies creditors about the bankruptcy. However, secured creditors and unsecured creditors are treated differently in bankruptcy. Bankruptcy doesn’t prevent secured creditors from collecting payments and pursuing late payments. To stop these actions, the person can choose to surrender the secured assets to the creditor. The secured creditor may sell the asset and use the sale proceeds to pay off the secured debt. If there is an outstanding balance after the sale, it becomes an unsecured debt. At this point, the creditor is treated the same as other unsecured creditors in the bankruptcy. Unsecured creditors are prohibited from taking any action against the individual once they declare bankruptcy.

Talk with an Experienced Bankruptcy Trustee: It’s crucial to recognise bankruptcy as a potential lifeline for people burdened by severe financial difficulties. It’s a tool aimed at helping them regain control and embark on a path to a more stable financial future. By contacting an experienced understanding insolvency professional, like those at BT Acumen, you can have financial recovery without judgment. To gain in-depth knowledge about bankruptcy or explore personal insolvency options, please contact BT Acumen’s office on (03) 9999 7946 or 0431 313 055, or via email us at info@btacumen.com.au. 

Unfortunately, there are some common misunderstandings about bankruptcy that may deter your clients who could benefit from it. These misunderstandings often come from well-meaning friends, family, or coworkers who might not have accurate information. We’ve identified eight of these misunderstandings, and we’ll begin to explain them below. Our goal is to provide you with the right information about bankruptcy so you can determine if it’s the best choice for your clients.

1. Bankruptcy is difficult
   While bankruptcy may appear to have many rules and seem somewhat confusing, it’s not so daunting that you should overlook the potential benefits it offers. With a skilled and experienced bankruptcy trustee on your side, you should feel at ease. The process is generally straightforward for most individuals. In fact, many of our clients have mentioned that they would have considered this option earlier had they known what the bankruptcy process entailed.
   
2. If I go bankrupt I will lose all my property and everything I have
   This isn’t accurate. Thanks to various exemptions within bankruptcy laws, most individuals who go bankrupt can retain their vehicle (provided it falls within a certain equity threshold) and essential household belongings. It’s important to understand that bankruptcy laws are designed to help rather than inflict harm. They’re not intended to force your clients into a situation where they have to live on the streets.

3. If I go bankrupt, I will never get credit again
   This isn’t entirely accurate. If a bankrupt individual applies for credit over a set amount, he or she must inform the credit provider of their bankruptcy. Credit reporting agencies keep records of a bankruptcy for five (5) years from the date a person becomes bankrupt, or two (2) years from when the bankruptcy ends, whichever is later. It is up to credit providers whether they are willing to extend credit to bankrupts and discharged bankrupts. But it is possible to rebuild credit after going through bankruptcy. Typically, when someone is considering bankruptcy, their credit rating is already in poor shape. In many cases, filing for bankruptcy can offer your clients an opportunity to begin repairing their credit rating. The reason is straightforward: their previous debts have been addressed and resolved. With a clean slate and post-discharge, they can establish themselves as responsible users of credit once again. In fact, some major banks, including at least one of the big-4 banks, are willing to extend credit to discharged bankrupts, provided they meet the repayment capacity, and the bank was not a creditor in the bankruptcy. Many bankrupts have successfully gone on to purchase homes after rebuilding their credit.

4. If I am married, my spouse must also go bankrupt
   This isn’t true. It is entirely possible for one spouse to go bankrupt without the other. In fact, there are many cases where it makes more sense for only one spouse to do it. Sometimes, misplaced fears can lead a spouse to request that their husband or wife not go bankrupt. However, it’s essential to know that hundreds of individuals file for bankruptcy without involving their spouse in the process. There may be some implications for jointly owned assets, such as a house or a motor vehicle. Typically, the bankrupt spouse’s share of jointly owned assets becomes part of the bankrupt estate. In many instances, the non-bankrupt spouse has the option to purchase the bankrupt estate’s interest in the asset.

Talk with experienced Bankruptcy Trustee: For our valued referrers, it’s important to recognise that bankruptcy can be a lifeline for clients dealing with severe financial burdens. It’s a tool designed to help them regain control and work towards a more secure financial future. By referring clients to experienced insolvency professionals like BT Acumen, you are offering them a path to financial recovery and a fresh start, without passing judgment on their financial situation. To get the facts about bankruptcy and learn about your personal bankruptcy options, call BT Acumen on (03) 9999 7946 or 0431 313 055, or send us an email at info@btacumen.com.au. Stay tuned for our next instalment in this series, where we’ll unravel another six bankruptcy myths.

Understanding the distinctions between the terms insolvency, bankruptcy and liquidation is important for making informed decisions and providing valuable guidance to clients. Today, we shed light on these three often used but distinct terms.

1. Insolvency

At its core, insolvency is a financial state where an individual or entity is unable to meet their financial obligations as they become due. It’s a situation many may face and it’s essential to recognise it as the starting point for addressing financial difficulties.

2. Bankruptcy

Bankruptcy is a consideration for insolvent individuals. It’s a legal process that provides relief to individuals who can no longer pay their debts. A person can become bankrupt voluntarily by lodging their own debtor’s petition with the Australian Financial Security Authority (AFSA.gov.au). Or they can become bankrupt through court proceedings initiated by one or more creditors owed at least $10,000 (a creditor’s petition). 

3. Liquidation

Liquidation, on the other hand, applies to insolvent companies. It’s the process of winding up a business’s affairs, selling off assets, and distributing the proceeds to creditors. This ends with the company’s dissolution.

Why These Differences Matter

Understanding these distinctions is vital, especially for professionals like lawyers and accountants. It enables us to provide tailored advice to clients, whether individuals facing bankruptcy, creditors owed money by someone refusing to pay, or businesses facing liquidation. By recognising these key differences, we can guide people toward the most appropriate solutions to address their own financial situation.