According to the Australian Bureau of Statistics, the average family with a credit card debt owes $3,433.00 compared to the $580.00 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 to this, credit card reward programs are leading people to spend more than they should for extra points. Small wonder that 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.

Since July 2006, Trustees 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; and
• 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 usually be fine.

Bankruptcy Fraud is a crime. Basically it involves concealing 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 (your expenses exceed your 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.

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, losing 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.

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 debt 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 rite 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 as a minimum.

• Pay attention to job security; think about 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/spouse/lover but DEBT.  The only debt you should have with your partner is a mortgage.

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 the 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.

The great thing about bankruptcy is that almost all of your debts will be cleared – credit card debt, personal loans, tax debt, unpaid phone and utility bills, and more. The only debts to remain will generally be court imposed fines and child support payments.

The reason bankruptcy should be seen as a last resort is that it can impose quite limiting constraints on your life that other forms of debt help do not.

Depending on your circumstances, your house could be repossessed and sold, your income could be docked and you could be prevented from traveling overseas in the immediate future. Bankruptcy  might also prevent you from working in certain professions or from directing a company for a period of time.

For some people, these will not be an issue but to make sure bankruptcy is right for you, talk to us first and get some sound advice. In many cases a debt agreement could offer you the relief you need whilst helping you avoid the restrictions that bankruptcy can impose.

Bankruptcy protected assets include: furniture, appliances, clothes, most household items, tools of the trade or items used to earn a living (up to a limit) and car or other vehicles used for transport (up to a limit). Bankruptcy protected assets even include your superannuation and any compensation money!

Basically the only property that will be sold in bankruptcy is property (house, land, apartments), shares and other investments (managed funds, etc).

Abraham Lincoln – 16th President of the United States

P.T. Barnum – The Great American circus owner

Kim Basinger – Oscar-winning actress (1993)

Frank Baum - Wizard of Oz author

Miguel de Cervantes – Novelist; Don Quixote

Samuel L. Clemens (“Mark Twain”) – best-selling American author/humorist (1894)

Francis Ford Coppola – Oscar-winning film writer/director/producer (1999)

Daniel Defoe – Author; Robinson Crusoe

Walt Disney – Oscar-winning film producer, animation & theme park pioneer (1923)

Henry Dunant – Red Cross founder

William C. Durant – Founder of General Motors

Henry Ford – Automobile manufacturer

William Fox – Co-Founder of 20th Century Fox Film Corporation (1936)

Charles Goodyear – 19th century American inventor, who discovered how to vulcanize rubber

Ulysses S. Grant - 18th US President; Civil War general, best-selling American Author, face is pictured on the US fifty dollar bill (1884, after leaving office)

Johannes Gutenberg – Inventor of movable type

H.J. Heinz – Founder of Heinz Ketchup

Robert Kiyosaki – Rich Dad, Poor Dad author

Stan Lee - Comic book industry pioneer, co-creator “Spider Man,” “The Incredible Hulk,” “The X-Men” etc (2001)

William McKinley – 25th US President 1897-1901

Immanuel Nobel – father of manufacturer/philanthropist Alfred Nobel , who founded the Nobel Prize (twice – 1833/year Alfred was born, 1856/ when Alfred was 23)

Oskar Schindler- activist who saved over 1000 Jews from the Nazis

Nikola Tesla – Invented alternating current

Donald Trump – billionaire entrepreneur

Oscar Wilde – acclaimed poet and author

James Wilson – U.S. Supreme Court Justice 1789-1798