When should I declare bankruptcy?

This is a specialist area and very subjective.

Let me explain. If you have good job prospects and your health is good then avoid the B word!

It affects your future borrowing ability and also the ability to travel overseas for three years. The stigma of being named a Bankrupt usually has a bigger effect on your personal self-worth (ego) than the day to day effects. It doesn’t affect you getting a job and living your life. You can still own a car, tools of trade and even start another business. It’s only if you apply for a loan that you need to declare your status.

It doesn’t need to be on Facebook or your new business cards. Actually no-one really needs to know.

angelaThere is talk of reducing the amount of time you would be classified in the state of bankruptcy from three years to one; however, at the moment you become an ‘undischarged bankrupt’ for three years. You must disclose this when borrowing money and are precluded from being a director of a company and several other government positions. If you earn over a set amount (increased for each dependant you support), you have to pay a percentage amount back to the Trustee in Bankruptcy. This gets distributed to your creditors (after their fees.) The threshold ceases once your three years are up and you are officially discharged.

I highly recommend that you obtain professional advice before going down this road. There are different types of bankruptcy and it can be complex. It also might be unnecessary.

I once had a client that wanted to see me and wouldn’t leave the office until I spoke to her. She was in financial distress and I got to speak to her at lunch. After calming her down, the story emerged that she had been taken advantage by a dating scam. So, not only was she hurt financially, she felt like a fool and in her words ‘how could I have been so gullible, I’m so stupid’. That’s how scams work! They prey on the lonely and take advantage of the good nature in people.

She was on a disability pension as she was unable to work due to a physical ailment. She withdrew money off her credit card to ‘help’ what she thought was a friend in Sydney – an ‘Internet friend’. This doesn’t only happen on the internet. People will befriend and then tell a sob story. Kind hearted people want to help. Over about a year of giving small amounts, it cost her $10,000 until she felt she was being scammed. Her distress over this amount had her shaking, unable to sleep and in major depression. She couldn’t ask her family to help as they would ‘treat her like an idiot’.

I calmed her down and explained that the amount was small in comparison to a lot of scams and that there was hope. The interest rate is very high on the credit card, so I asked her to approach her bank and ask for them to change to a personal loan with repayments that she could afford. No need to tell her family. She made a mistake and the bank understands people make mistakes. They were more than happy to negotiate a payment plan for her. Her relief was immense and she was able to go on living her life without the debt hanging over her head.

This is just an example of where a small amount can be so overwhelming it affects the state of your health, sleep and existence. I have had many clients with amounts in the thousands to the hundreds of thousands that felt fine about the debt they owed. It’s a personal issue that needs a personal solution.

My advice is … Google your options and learn about Bankruptcy but also talk to someone that can put your concerns into perspective and advise you on your best plan of action. Integra Business Accountants can help.

By Angela Fritzsch
Director and Senior Business Advisory Accountant