As Australians struggle with increasing debt burdens, it is no surprise that personal bankruptcies are also on the rise. In fact, three times as many individuals have declared bankrupt in order to absolve their debt obligations compared to 20 years ago. Whether it is due to unmanageable high interest debt like credit cards or personal loans, rapidly increasing housing prices across Australia or a loss of income or other financial hardship, individuals can use bankruptcy as a solution to get out from under debt obligations. However, declaring bankruptcy is not a fast fix and should only be used as a last resort when other remedies are unavailable or unattainable.
Even though going bankrupt has become a more popular choice for some individuals, there are a number of negative effects it can have on a person’s financial health. First, going bankrupt is not a quick fix, but instead is a decision that stays with you – and your credit file – for years. Declaring bankruptcy is a process that takes three years on average to complete, and is shown as a black mark on your credit file for seven years. Additionally, bankruptcy results in a person being listed on the publicly accessible National Personal Insolvency Index for their lifetime which can make it difficult to obtain credit in the future, and may also limit professional growth. Some occupations are not available to those who decide to go bankrupt, such as real estate agents or police officers, and creditors are not keen on offering affordable credit to those who have declared bankrupt. Individuals should also be aware that going bankrupt will put severe limitations on travels as well as the retention of assets. A trustee is appointed to an individual who is declaring bankruptcy, and that trustee has the ability to sell off most assets in order to pay down debt obligations to creditors. The bankrupt individuals must also request permission from the trustee to travel while the bankruptcy is in process.
For individuals struggling with keeping up with their debt load, it is important to research various options before going bankrupt. A consolidation loan may be a viable option for some, as it provides for a potentially lower interest rate than high interest debts as well as one consolidated payment each month. Similarly, refinancing your home in order to access its equity may provide a much more affordable solution in consolidating high interest rate debt. Finally, debt agreements, which are a less harsh form of bankruptcy, may be a better choice in the long-term as they provide more flexibility to debtors. No matter the reason for the financial hardship that causes the consideration of declaring bankruptcy, it should only be used as a last resort to get out of debt. Seek help from a financial specialist to find the right path to your debt solutions before it’s too late.