Where To From Here?
For me, there was relief once I received notification that my bankruptcy had gone through. I really didn’t know what was going to happen, but I knew it could not be worse than what I had been through. Initially nothing seemed to change, I got up and went to work the next day and the process of becoming bankrupt seemed uneventful. The debt collection phone calls started to stop but it was not until I received my next pay cheque that I got excited. It was a big win for me when I realised I did not have to pay any money from my wages to keep creditors at bay. My wages were solely for me. That was like a lottery win!
If you are a high wage earner you may have to make income contributions to the bankrupt estate. To give you a guide even without dependants, you will be able to keep at least $1,320.33 per week after tax. If you have dependants, this amount can increase up to $1,543.91 per week after tax, (see section called ‘Wages, super, spending) If this applies to you please email me at firstname.lastname@example.org or phone 1300 764 197
These amounts of $1,135.23 and $1,543.91 per week are called ‘threshold amounts’ and your wages up to these amounts are yours to pay your living expenses. Earn more and you split the excess 50/50 with your bankrupt estate. There are no restrictions on what you can earn and yes, while half of the excess over the threshold amount goes to your bankrupt estate, it’s only half. The rest is yours! I started to be able to save a little bit, replace household furniture and save for unexpected bills. That felt so good. I was like a kid at a toyshop when I purchased my new fridge.
I should mention, the key is not to spend any of your wages on unprotected assets (eg: boats, caravans, shares etc) whilst bankrupt. If you buy an unprotected asset, your trustee is obligated to sell it, and put the proceeds into your bankrupt estate. For me, it’s important to know what you can and can’t do during bankruptcy for you to get the best result from bankruptcy. What you can do during bankruptcy is save money in the bank, buy new household furniture, save for a holiday, accumulate savings for a rainy day and get on with your life. I was quite overwhelmed when I realised the debt was gone. The storm had passed!
Speaking of spending and banking, I should mention that your credit cards can no longer be used while you are bankrupt. The bank will freeze your cards and render them inoperable. For the convenience of a credit card, talk to your bank about a debit card instead. If you are planning on travelling (yes, you can) or buying things online you will need the convenience of a card. A debit card will do this for you.
One of the assets that goes into the bankruptcy ‘bucket’ to pay your debts may be your home, which means you may need to rent until you are out of bankruptcy and in a position to buy another home.
If you are unable to remain living in your home and need to find rental accommodation, be patient and be prepared to allow extra time to find a rental property in case there are some difficulties. Remember you will not have rental references to support your application for a rental property. If you are presently renting I would not expect you to have any problems, so long as you have good rental references.
In bankruptcy, it’s all about using common sense. If you are going to go bankrupt, make sure all your service providers (gas, electricity, telephone etc) outstanding accounts have been paid before you declare. You do not want to live in a house with no electricity! There’s no point making life harder than it has to be. Showing that level of responsibility (with cash – not with a credit card) will stand you in good stead for the present and the future.
In the lead up to bankruptcy, you should not run up liabilities on your credit card for those liabilities to be included in your bankruptcy bucket. Bankruptcy is about solving problems not creating problems.
Until now, bankruptcy has probably been a new and frightening concept for you. There is a staggering amount of misinformation and pressure out there, so these notes are aimed at giving you information and answers. I know where you are at now because I have been there. That’s why I can write about it and hope you will identify with a lot of what I say and feel better. If you have any questions please email at email@example.com or phone 1300 764 197
So now you know a big chunk of your wages is safe and so is your super (see the section called ‘Wages, Super, Spending’), your car and household furniture are protected and you may be able to stay living in your house (see the section called ‘Can I Own Anything’). You can travel overseas for work and or play (see the section called ‘Can I Travel’). Life is normal again, or as close as possible – and you can plan for the future and make positive steps towards your future. For me it was a big win.
And keep in mind that financial problems can fall on anyone. It’s not just people who are working who may have problems. I’ve helped people from all walks of life. I’ve even helped retirees and pensioners to go bankrupt. The worry over a few thousand dollars’ of debt – debt they can’t pay – becomes overwhelming. Often retirees have credit card debt, left over from when they were working. They couldn’t manage to pay it off then, and now, try as they might, it’s too hard on a limited income. I often find these people struggle with the idea of bankruptcy until they realise it lets them get on with their lives. If this is your situation, please be reassured your pension is not affected by your bankruptcy. The pension is yours. Having said that, bankruptcy can really happen to anyone. I have seen people who are high income earners go bankrupt because they are not getting on top of their debts, despite making the minimum required payments all the time. No matter what your circumstances, the bottom line is bankruptcy may be an option to help you. It’s important to remember you’re not the only one who has ever gone bankrupt and bankruptcy is about solving financial problems.
Your Credit Rating
Throughout these pages I talk about your credit rating. Bankruptcy, Debt Agreement Proposals and Personal Insolvency Agreements all damage your credit rating for five years. What’s relevant, is the condition of your credit rating after the five years has passed. I recommend you exercise care once bankrupt to not do anything which will damage your credit rating. That way, once the five years has passed you will have a clean credit record. I recommend that you start working on building a good credit record as soon as you become bankrupt. My tips are:
- Always pay your utility bills on time for example electricity and gas
- Always pay your rent on time
- Keep your bank account in credit and do not bounce cheques
- Keep away from payday lenders – you do not want them on your credit record
- Keep all your regular payments such as car payments on time
Proof of your responsibility over the three years of bankruptcy and then the further two years until the credit rating situation changes will help your cause.
From my experience, many people are not aware that if you apply for a loan and it is rejected your credit rating is damaged. After you have become bankrupt, why don’t you talk to your bank manager and find out what criteria you will need to meet, to be approved for a loan after bankruptcy disappears from your credit record. That way from the first day of your bankruptcy you can start striving towards that criteria.
Benefits of Bankruptcy
- Choosing bankruptcy will give you peace of mind
- It will cancel most of your debt – tax, credit card, and personal guarantees – and the debt collectors will stop hassling you
- Saving is something you can start doing again
- You can probably keep your car – as long as you keep up the payments
- You may be able to keep living in your house (see section called ‘Can I own anything’)
- Overseas travel is possible – there are some rules, but you can go
- You don’t have to go to court to go bankrupt
- It is completely private. No media or police involved
- You will be you again, and able to sleep
- Bankruptcy solves financial problems for you to be able to move forward
To get further insight into how bankruptcy works, we recommend the article Wages, Super and Spending which can be accessed here https://understandingbankruptcy.com.au/wages-super-and-spending/
If you would like to start planning a holiday or are thinking about working overseas, we recommend you also read our article Can I Travel or Work Overseas? Which can be accessed here https://understandingbankruptcy.com.au/can-i-travel-or-work-overseas/
If you would like more information on Bankruptcy and Your Superannuation we recommend our comprehensive article on this subject which can be accessed here https://understandingbankruptcy.com.au/bankruptcy-and-your-superannuation/
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