In the last quarter of 2014, residents from the Sunshine Coast noted unemployment and the growing balances on credit cards as the main causes of bankruptcy. When steady income is being earned and individuals are able to manage their monthly payments easily and on time, the use of credit through credit cards or personal loans is not a necessity. However, once a job is lost through unemployment and income stops, families are forced to quickly spend down their accrued savings balances on everyday living expenses. Once savings are depleted, it can be nearly impossible to stay away from getting loans to fund life, which can cause serious financial issues for those who do not have an income to repay borrowed funds. Unemployment then leads to outstanding credit card and personal loan debts that end up in default, perpetuating financial concerns even further.
Bankruptcy
Bankruptcy takes place when an individual is deemed insolvent either through a voluntary filing or by persuasion of a creditor that has not been paid. Once you are declared bankrupt, each of your creditors are notified and a trustee is appointed to manage your bankruptcy case. The appointed trustee is tasked with selling your assets in order to fulfill your outstanding debt obligations. He or she will also mandate contributions directly from your income once you start earning over a certain amount each month. Additionally, the trustee will investigate all of your financial affairs in order to recover physical assets such as property as well as money that has been transferred to someone else for inadequate consideration.
The process of going bankrupt can last for up to three years, and will negatively affect your credit file and will be of public record for 7 to 10 years. There are specific restrictions you are beholden to, such as obtaining permission from your trustee to travel overseas, and you are unable to be a director of any company. In order to avoid these negative consequences, it may be beneficial to consider a debt agreement.
A debt agreement is a formal contract between you and your creditors that allows you to repay a single monthly payment over time. A portion of your debt is written off and all interest and charges are frozen, providing an easier way to pay back your creditors. Debt agreements do not require selling your assets or the need to appoint a trustee, and there are far fewer restrictions than when one goes bankrupt. An individual can avoid going bankrupt by electing instead for a debt agreement for unsecured debts, and is able to return to a place of financial health after completing the agreement.