Myth 1: I don’t have enough debt to declare bankruptcy?
While it’s sometimes inappropriate to consider bankruptcy if you can repay your debts. However, if you are struggling with debts there’s no limit on the amount of debt you need to have to voluntarily declaring bankruptcy. Everyone’s situation is completely different – $5,000 debt to someone could have them struggling the same as another with $50,000 debt. The good rule of thumb is if you can not repay the debt without it causing you and your family financial stress in under 3 years we believe bankruptcy could be an option for you. On the other hand if you have creditors trying to force you into bankruptcy you must owe them a minimum of $20,000 and 6 months duration. It’s much better and cleaner to declare voluntarily, not to mention a lot less stressful.
Myth 2: I’ll lose my house & Car?
Not necessarily, and in most cased you will be able to keep the car. As everyone’s situations are different and car values differ the easiest way to determine if your car can be kept when bankrupt is to read the below 4 options which should cover off on whether you can keep your car. The Australian Financial Security Authority standard rule is that there’s a cap of $8,000 allowable for a vehicle. This cap can be confusing especially if you have a loan against the car.
- You have a car and it’s value is less than $8,000 and you don’t have any loan against it (owned outright)
If you have a car and it’s value is less than $8,000 and you own it outright the simple answer is yes you can keep the car – you must include this car as an asset and record it’s value in the documentation, however the bankruptcy trustee will not take the car as it’s under the limit
- You have a car and it’s value is less than $8,000 however you have a loan against it (loan amount doesn’t matter)
If you have a car worth less than $8,000 and have a loan against it again you can keep the car as the value you have in the car is less than $8,000, however you must keep the loan repayments up to date even after the bankruptcy. As the car has a secured loan if you stop making repayments they can repossess the car.
- You have a car and it’s value is more than $8,000 and you don’t have any loan against it (owned outright)
Now when you have a car and it’s value is more than $8,000 and you don’t have a loan against it is when you need to start looking at options. For example Bob had a car worth $15,000 and he owned it outright. He needed to declare bankrupt but didn’t want to lose his car. Bob has 2 options. He could surrender the car to the trustee who would sell the car and pay Bob $8,000 back so he could buy a vehicle and the remainder would be paid to the creditors. Option 2 is that Bob could negotiate with the trustee to pay back a portion of the equity above the limit of $8,000. Example would be that bob’s car is $15,000 minus the limit of $8,000 gives a net equity above the limit of $7,000 – Bob could negotiate to pay $5,000 of that $7,000 over the next 24 months @ $208 a month and keep the car. Both options could work, however you would need to receive pre-insolvency advice to ensure you get the best option.
- You have a car and it’s value is more than $8,000 and you have a loan against it
The available equity can be $8,000. So if bob had a car for $20,000 and a loan of $12,000 the available equity in the car is $8,000 which is acceptable so bob can keep his car. Remember, though you will need to continue to pay the car loan or the vehicle will be repossessed. However, if Bob only owed $10,000 the equity would be $10,000 which is above the limit. So in this situation Bob could either surrender the vehicle and the trustee would sell and give Bob back $8,000 from the sale proceeds so he could buy a vehicle. The other alternative is that Bob could negotiate to pay the trustee the $2,000 that he’s above the limit over the next 24 months which might be affordable. You see how it’s really up to the individual to determine the suitability of each option. If you need a car for work it seems only natural that you would need a car after your bankruptcy is lodged.
What happens if I can’t afford my car after bankruptcy has been lodged
Well if you decide to keep your car with the loan and in 12 months your situation changes and your car loan is no longer affordable. You’re still protected underneath bankruptcy. What this means is that the finance company can still repossess the car as it’s classified as a secured loan, however they can’t chase you for any shortfall after they sell the car as the debt was taken out prior to the bankruptcy. Also, you need to be aware that many pay day lenders will register an interest on the PPSR (personal Property Securities Register) when you take out a loan with them. This means that even though their debt is included in the bankruptcy they have the right to repossess your car as they have registered an interest on the vehicle.
What will happen to my house?
Having a house when you declare bankruptcy can become complicated, however if you want to keep the house there are options available to you. It would depend on how the house’s ownership is structured. After this, the next important fact is the available equity in the house. Basically the more equity available in the house the less likely it is that you can keep it. This one doesn’t have a quick answer and you will need a free advice session – complete the below form with your details and we can go through if you can keep your house and how much it’s likely to cost you to do so.
Myth 3: Everyone Will Know and I’ll Be Embarrassed!
This is completely wrong. There are certain people that must be notified, however outside of that bankruptcy is highly confidential. I’ve had clients not disclose their bankruptcy to their partner that’s how confidential the whole process is. The only people that will be notified are:
- Your creditors – they must be notified as we are releasing you from their debt through bankruptcy
- Any other parties to the loan – if you have a joint credit card / personal loan / home loan etc etc the other party will be notified that you’ve declared bankrupt – this is because they will now become liable for the whole loan amount as the creditor can no longer chase you up for this debt
People think it’s published in the paper – no absolutely not. Australia’s Bankruptcy Privacy Laws are quite strict. Now you will be placed on a NPII register which is a list of all Australian’s that have declared bankruptcy. We haven’t had this affect any of our clients regarding others finding out ever. There are however, some jobs you cannot hold – trust account management, certain industry licences so you should seek advice to see if this will affect your job.
Myth 4: It Means I’m a Failure!
Who ever came up with this one should be shot. This shouldn’t even make the Top 6 Bankruptcy Myths… but it does as it’s a concern for many. I get it, you have outstanding debts and your moral compass is telling you that you should be repaying these debts that you took out. However, in today’s age it’s far to easy to get approved for consumer debt and many of your loans you probably should not have been approved for. There’s not enough compliance around high interest debt and you are just caught up in the cycle. Failure is only true when you decide to give up. Bankruptcy is the opposite of giving up. It’s giving you a fresh debt-free start to move forward rather than staying on the hamster wheel and continuing down the same dark debt ridden path. Declaring bankruptcy can be the most Honorable thing you do for your family.
Myth 5: Bankruptcy Will Ruin My Future!
This one is probably the most irrelevant. If you’re struggling to live due to debts and you continue to live this way – isn’t that ruining your future, not to mention the strain it puts on your family? Bankruptcy will release you from most debts – this will put money back into your pocket each week. Yes, there are some small obligations and how they affect you will differ – read our Should I File for Bankruptcy Post for more detailed information.
Myth 6: I Can’t Travel Overseas!
Wrong, you absolutely can. We have never had 1 client refused an overseas trip, whether it’s for work or holiday. There is however a process to follow. Years past AFSA confiscated passports, however today they don’t. If you are bankrupt one of the obligations is that you complete an AFSA overseas travel application. This merely gets you to specify the details of the travel. However, you do have to pay AFSA a fee of $150 for each overseas trip. Now as you can see these Top 6 Bankruptcy Myths aren’t nearly as bad as people make out. The most important part is to seek advice based on how bankruptcy will affect your situation and your family and how the obligations will work. It’s not complicated when you have the right people helping you: