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Managing the Unmanageable

Informal options for debts and bankruptcy in Australia

Every now and then you can hear that some bank has gone bankrupt, that some company is insolvent, and there are even entire countries that go bankrupt now. It has become a global epidemic, primarily caused by the great economic crisis that the world has not yet fully recovered from. In order to understand what can be done, we must first understand what is bankruptcy.

What does it mean to be bankrupt?

Some people imagine that the state of bankruptcy is the same as having no money, or, in plain words, being penniless. However, this is not the case. Being penniless means that you have no money, but you have no debts to repay, either. It just means that you do not have the money to spend. On the other hand, going bankrupt means that you have outstanding debts that have to be repaid, and that the amount of those debts is greater than the value of all your assets and incomes. This means that the likelihood of you repaying the debts is very low or non-existent.

By declaring bankruptcy, you enable a complex legal process to take place that will in the end help to clear all your debts, but not without a price. Your assets will be at stake, some might even be taken and repossessed. There are, however, legal solutions to avoid this whenever possible. Also, your reputation with the creditors will suffer greatly. You will probably be forbidden from taking new loans for a certain amount of time (a few years) and it will be recorded in your credit history that you went bankrupt, thus making it much harder to obtain new loans when you are allowed to do so again.

How to manage the debts that threaten to push you to bankruptcy?

When you think that you are nearing bankruptcy or when you are warned that that may be the case, there are a few options that you might have to prevent that from happening. In Australia, these options are regulated by the Bankruptcy Act of 1966. This act covers the formal part of the available options. There are, however, some informal options (this means that they do not necessarily concern the legal part of the obligations) which might help you control your debt, as well.

Informal options

Before trying to consolidate your debts in a formal way, there are a few options that you might take yourself, in order to avoid going bankrupt.

The first one is to identify the situation and try to control it by:

  • Identifying what you owe and to whom - This is the first step towards regulating your debts. It will be much easier to control your debt if you know what and when you are due.

  • Rearrange your financial affairs - Try to use various websites that offer guidance for the financially misfortunate and work towards adhering to the advice that they have to offer.

  • Change your spending - Work on changing you spending habits, since, obviously, they are not good enough. Reduce where you can.

The second option is to approach your creditors in order to work out a better deal by:

  • Asking them to give you more time - More time means lesser monthly payments and longer period of time before bankruptcy has to be declared. While this is usually not done, when there is threat of bankruptcy, it might be possible that such hardship assistance can be effected.

  • Changing the timing and the amount of your repayments - It might happen that your payments are due in a bad time of the month. This can cause a lot of problems and frustrations. Changing the timing of the payments to coincide with your incomes will go a long way towards easing the situation and the tension it creates, thus enabling you to see more clearly what to do, and when.

  • Changing the terms of your contract - In some cases it might be possible to vary the terms on your loan agreement. This can enable you certain options, like paying off a part of your loan without paying the fees for doing so, or certain other options that include the two that are explained above.

  • Accepting a lesser part of your debt - If the creditor thinks that your debt is too high, they might decide to write off a part of your debt. While this is a favorable thing for you at the moment, it might cost you a lot after some time, since this will be written in your credit history, and bad credit history leads to much more unfavorable loan terms.

The third option is to ask for help from persons and organizations that are qualified in the bankruptcy field. Financial councilors, registered trustees, debt agreement administrators and accountants can all offer various advice and assistance by:

  • Speaking to your creditors - Financial councilors can speak on your behalf and negotiate better deals for you. They do this for a price, of course, but, you can be sure that their expertise will land you much better deals that you might obtain yourself.

  • Advising you on your rights under the Consumer Credit code - These advisors can provide valuable pieces of advice concerning your rights in this situations, and might reveal possibilities that you did not know exist. It goes without saying that a greater number of options is always welcome.

  • Settling disputes - If you have some issues with your debts, you are not sure why something is the way it is, or feel that you are charged more for no reason, these advisors can help you resolve that in the manner that is the best for the time being. They can also explain every issue that you might have with understanding your loans.

  • Helping with your budgeting - There are numerous personal accountants that might help you get your payments and debts straight by taking care of your monthly budget, and taking charge of all financial elements of your life. They will tell you what to pay and when, in order to get out of the hassle as fast as possible.

Declaring bankruptcy is not something to be taken lightly, and it should be avoided at all costs, since the period of the bankruptcy is the most stressful period of time that a human being can endure. Trying to take these steps and options can prove to be very helpful and will go a long way towards easing the tension and relieving you of the stress, thus making it easier to deal with the situation.

More Stories By Anne Lee

Anne Lee is a freelance technology journalist, a wife and a mother of two.