There is no doubt the state of the economy as well as the rise in the unemployment rate means many Australians are struggling under the weight of their personal debts at the moment. People with high debts often think that becoming bankrupt is the only solution to their problems. But being declared bankrupt has serious and life-long consequences and should be treated as a last resort only.
What are the consequences of being declared bankrupt?
If you are declared bankrupt, the consequences will vary depending on your individual circumstances. But it's likely that if you are declared bankrupt you will have to liquidate some or all of your assets, including property and cars.
People who are declared bankrupt are also unable to apply for certain jobs, especially when they are un-discharged bankrupts. It's very difficult, for example, to work as a company director and obtain a position in the financial services sector if you are declared bankrupt.
Being bankrupt also curtails your ability to travel outside Australia. It's also very difficult to obtain credit or finance once you have been declared bankrupt, often for the rest of your life. Quite simply, the consequences of being declared bankrupt seriously outweigh any perceived benefits such as being ostensibly debt-free.
What are the alternatives to bankruptcy?
Even if you have high debts, there are many alternatives to being declared bankrupt. Most people should fully explore these options before going down the bankruptcy path.
Depending on the size of the debt, it's possible to enter into formal or informal arrangements with your creditors to work out a payment plan to repay the debt over a period of time.
Again depending on your individual circumstances, it's also possible to consolidate all your debts - for example credit card and personal loans debts - into one loan. This will usually mean you pay a lower interest rate than the interest rate being charged on each individual loan, which should also ease your debt burden.
At the moment, many financial institutions are also offering mortgage holidays to people who are having short-term problems paying off their mortgage. If you have lost your job it's worthwhile contacting your financial institution to see whether they will offer you a mortgage holiday to give you a bit of breathing space on your mortgage until you find another job.
Anyone who is struggling to pay off their debts should also talk to a financial counsellor about how best to manage their ongoing financial liabilities. Although financial counsellors can't usually act as a mediator between you and your creditors, they can suggest approaches you can take to help reduce your debt burden and get back on the path to wealth.
To contact a financial counsellor, get in touch with a respected charity such as the Salvation Army. There are also state-based financial counselling associations that will be able to help you find a financial counsellor in your local area.
