Category Archives: Bankruptcy

Government Should Leave It Alone!

By Bankruptcy Ben | Published: July 1, 2010

The government, well more specifically the Attorney Generals Department are having a review into the Debt Agreement System at the moment.  They have these things every so often.   The big news is that there a changes being considered to the bankruptcy act to “encourage” people to do Debt Agreements (a payment arrangement with creditors). The things they’re looking at implement are

  • Mandatory Counselling before you can go bankrupt and before you you’re discharged from bankruptcy
  • A means test for bankruptcy, if you earn too much to bad
  • Raising the amount you have to repay under bankruptcy
  • A “junior” or a “mini” bankruptcy for people with no assets and very little debt eg  aged pensioners, disability pensioners, etc. There would be reduced consequences but it would be a one time only deal.

Personally I’ve always admired the fact that Australian Bankruptcy law isn’t punitive.  It’s always been a way for Australians with debt they can’t repay a lifeline.  It wasn’t designed as a punishment. You just can’t get out another debt for 7 years. If you got big assets they’re sold and and given to your creditors as a partial payment.  Doesn’t seem that bad right?  Seems kinda fair.

Very few people deliberately incur debt with the intention of filling for bankruptcy. Maybe 1 person a month out of 25,000 people every year.  Rather than punishing people who file for bankruptcy surely it’s better to reward people who choose to do a debt agreement. My suggestions for encouraging people to do a debt agreement are

  • Remove notation on credit history after the debt agreement is finalized

Actually that’s about it.  That’s all you need to do! Almost every single person we talk to wants to pay back their debt. The just need to be able to do it at a rate they can afford.

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Spend Now Pay Later

By Bankruptcy Ben | Published: May 20, 2010

Has anyone noticed how much of a’ spend now pay later’ culture our society has become? Everything in our current society pushes as to spend. Glamorous advertisements, enticing sales, special promotions, and even reward credit cards. How can we say no to that ‘to-die-for’ pair of shoes that is now 20% off or that new PS3 that’s coming with every Sony television? We don’t even need to have money in our bank accounts! We can just pay on the credit card (get some reward points while we’re at it) and we can pay it off when we have the money. Simple, right? Wrong.

According to the Australian Bureau of Statistics the average family with a credit card debt owes $3,433 compared to the $580 owed by each household in 1998-1999. The more alarming thing is that these figures are growing. This is not surprising considering the ‘credit’ on the card often seen as actual cash just waiting to be spent. To add, the credit card reward programs are leading people to spend more than they should for extra points. Small wonder than bankruptcy rates are rising. Bankruptcy does come with a price but for many the price of staying in debt is higher. Read some of the other bankruptcy blogs on here for more information.

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Bankruptcy Conviction

By Bankruptcy Ben | Published: May 4, 2010

The recent conviction and imprisonment of a Dandenong hairdresser show how important it not to take out a loan you don’t intend to pay back.

The Hairdresser applied for a car loan, an ANZ credit Card and a Commonwealth credit card after he was in trouble and about to file for bankruptcy.  They didn’t disclose they financial trouble to their creditors.  Just before filing for bankruptcy They removed $23,400 from their bank account and then a further $12,500 after filing for bankruptcy. .

It’s important that such case ares prosecuted because it throws into question the integrity of the bankruptcy system.  Bankruptcy needs to be seen as a legitimate solution for those with financial difficulty.

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Bankruptcy and Overseas Travel

By Bankruptcy Ben | Published: April 30, 2010

Lots of people ask about overseas travel when they enter into bankruptcy.

Under the Bankruptcy Act overseas  travel needs to be approved by the Bankruptcy Trustee assigned to manage your case.

If you apply to travel overseas generally the answer will be no.

The simple logic is that if you can afford to travel overseas why can’t you afford to pay you creditors?

The geneal ban on overseas travel under bankruptcy has some exceptions:

  • family emergencies or tragedies where someone else is paying.
  • the travel is for work and the income will  increase the amount of money going to creditors

It should be the acknowledged that overseas travel under bankruptcy is totally at the discretion of the Bankruptcy Trustee.  Even if it is a family tragedy or you have to go on an important business trip the bankruptcy trustee can say no and their decision is binding.  You can appeal through the Administrative Appeals Tribunal.

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Boring Bankruptcy Update

By Bankruptcy Ben | Published: April 13, 2010

New figures released to day by ITSA (insolvency trustees services australia) showed that there were 6,568 new bankrupts in the March 2010 quarter, a decrease of 8.29% against bankruptcy activity in the March 2009 quarter (7,162) and a decrease of 2.98% on bankruptcy activity in the December 2009 quarter (6,770).

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Superannuation in Bankruptcy

By Bankruptcy Ben | Published: April 8, 2010

Superannuation is a protected asset in bankruptcy.  If you file for bankruptcy your trustee generally can’t access your super to pay out your creditors.  This makes good sense for the majority of bankrupts given that super will be relied upon to fund retirement.  However I’m sure you can see this poses a way for creditors to be defrauded by someone deliberately making extra super payments or lump sum payments prior to bankruptcy.

Since July 2006 Trusties have been able to void transfers to superannuation.

  • To void a transaction the trustee must show that
  • The transaction happened
  • The transaction occurred within a specific time period, or while the debtor was insolvent but not yet bankrupt
  • The property would have been distributed to creditors if the transfer hadn’t been made
  • The main purpose of the transaction was to keep the asset under bankruptcy

Transfers made to superannuation by third parties on behalf of the debtor might also qualify.

Generally superannuation is safe under bankruptcy, if you haven’t tried to hide assets from creditors you will generally be fine.

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Don’t Worry About Bankruptcy Fraud

By benparis | Published: March 19, 2010

Alot of readers are concerned about Bankruptcy offences, well they’re more concerned about being locked up if they file for bankruptcy and there are 40plus criminal offences under the Bankruptcy Act so it’s small wonder they do. The main reason people are thrown in the the clink is because of Bankruptcy Fraud. So I thought I would briefly explain what Bankruptcy Fraud is.

Bankruptcy Fraud is a crime. Basically it involves convealing assets (think Rene Rivkin), destroying important documents (think Enron) but the most common type of bankruptcy fraud involves obtaining a debt with no intention of repaying it.

If you file for bankruptcy a month or so after obtaining a debt or if you’ve never made a payment on a debt you may be looked at by Bankruptcy Regulation. The basic idea is that you should know that you’re not in a good financial position and that you are insolvent (expences more than income). If you’re insolvent you won’t be able to pay back the loan, and when you take out a debt you declare that you can repay it. Ipso facto it’s an act of fraud.

Most people don’t take out a loan with the intention of never repaying it so Bankruptcy Fraud shouldn’t be a concern.

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Roof Insulation Bungle Bankruptcy

By benparis | Published: March 17, 2010

7000 small businesses are facing bankruptcy and 6000 workers are likely to loose their jobs after the collapse of the insulation installation scheme.  When the government introduced the home insulation scheme it dramatically increased demand for home insulation. This false demand was met by a dramatic supply side increase in the number of “insulation installers”.  This false demand was bound to end at some point it’s just happened a lot quicker than many people expected.

Small business owners have likely invested large amount of money in Cars, equipment, training and advertising.  Many will have borrowed against their homes to set up the businesses. These will be the first to face bankruptcy, loosing assets they have taken years to accumulate.   The second group of people facing bankruptcy will be insulation workers.  Unemployment is the number one cause of bankruptcy in Australia this will undoubtedly increase bankruptcy rates.

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The Top 3 Causes of Bankruptcy in Australia

By benparis | Published: March 15, 2010

The data is clear in Australia the top 3 causes of bankruptcy are

  1. Unemployment
  2. Domestic discord (divorce, separation)
  3. Excessive use of credit

I know it’s probably no surprise that the number one trigger for bankruptcy is unemployment. Unemployment is particularly destructive because it often arrives without warning. Suddenly you’re left with no means of servicing debts that only last week wasn’t even on your mind.

It also may come as no surprise that the second major cause of bankruptcy in Australia is domestic discord/divorce. Couples often get into debt together; it’s up there with getting married these days as a right of passage.  Then, when the relationships turn sour (which happens in about 50% of relationships) debt that was once affordable becomes unaffordable.  Primarily this is due to a doubling of expenses that there were previously; 2 rents, 2 electricity bills, 2 grocery bills, not to mention expensive lawyers if it gets ugly.

Excessive use of credit is the third most common cause of bankruptcy, or spending too much. With ready access to credit cards and personal loans, it’s easier than ever to live beyond their means. Seemingly without realizing it, they then wake up one morning with tens of thousands of dollars in credit card debt and an inability to meet the repayments or consolidate their way out.

AVOIDING BANKRUPTCY

The causes of bankruptcy are varied but they do point to some clues as to what you can do to avoid bankruptcy:

  • Save for a rainy day, 5% of your income minimum.
  • Pay attention to job security, both in the type of work you choose and look carefully for signs that your job may not be secure.  Consider income protection insurance, you can get some cover fairly cheaply
  • Aim to be debt free as quickly as possible.
  • Share everything with your partner/wife/lover but DEBT.  The only debt you should have is a mortgage with your partner.
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Bankruptcy Brothel

By benparis | Published: March 8, 2010

Britain is fast finding out that watering down bankruptcy legislation can have unexpected consequences.  Lenient insolvency laws (bankruptcy generally 12 months or less in Britain) are being exploited by both British and Foreign companies to off load debt.

The Third largest Telecom in Greece moved its assets from Luxembourg to its British 1 man 1 desk office.  Two weeks later it started used bankruptcy law to wipe out more than 9 Million Pounds owing to Royal Bank of Scotland.  They formed a new company which had been freed of 1.3 Billion Pounds of debt.

With the Greek economy on the rocks experts say the Bankruptcy Laws could lead to Britain could become a “bankruptcy brothel”

If Australia is not to follow a similar path Bankruptcy legislation should be tightened.

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