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Should I declare bankruptcy?

Things are really tight after losing my job and I have so many debts. I was advised by a mate to declare myself bankrupt but I am not sure about the long-term impact.

If you did this it is something that will go on your credit record so you should not easily jump at this option. On the other hand, if the debt overload is killing you, it has to be looked at seriously for some. Sometimes it’s not an option and your creditors can bring it on. By the way, if you trudge down this road, forget about turning back, so consider the pros and cons first.

Of course, early recognition of debt problems and seeking help can mean you avoid the ‘B-word’. Using an accountant or a financial counsellor can help you with your negotiations with your lender.

Someone with low income, assets and debts can go for a Part Nine Agreement if you debt is not secured against property and if your assets are worth less than $72,381. Your net income has to be less than $54,286. (These figures could be slightly higher now, but you get the rough ballpark figure.) The agreement means you make an offer to your creditors on a repayment plan. You can use lump sum, instalment or even trade another asset to please the creditors. It all happens through the Insolvency Trustee Service of Australia (ITSA). This is ITSA option worth looking at if you’re in trouble with rising interest rates and they should be contacted for information. A Part Ten agreement can be used by anyone and involves using a solicitor to negotiate with creditors. To voluntarily declare yourself bankrupt, you contact ITSA and then comes a seven-day cooling off period and over that time your creditors can’t seize assets.

By the way this strategy can only be used once over any 12 months. After the seven days if you still want to go ahead, you sign a debtor’s petition in which you declare yourself bankrupt. You also show your whole debts, income and assets’ picture in a statement of affairs. I suggest you tread carefully on this bankruptcy option.

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Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, February 08, 2010

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