Daily BulletinHoliday Centre

The Conversation

  • Written by Gregory Mowle, Lecturer in Finance, University of Canberra

The process to go bankrupt is too easy and does not allow for the debtor to explore all their options.

As part of my research I interviewed 29 people who had recently declared bankruptcy. We discussed the process. I found that at least half of the people interviewed did not have to go bankrupt.

Going bankrupt still carries great stigma in Australia. The participants in the research reported experiencing feelings of shame, embarrassment and guilt. The decision to go bankrupt should only be made after careful consideration and taking the time to weigh up all the options.

So why is the process to go bankrupt as simple as downloading forms from the official government website, completing and submitting them via email the same day without the need to have received any advice or assistance to avoid the bankruptcy?

In 2015/16 just over 17,200 Australians declared themselves bankrupt. Added to this figure were around 12,500 Australians who declared themselves insolvent and entered into an agreement with their creditors. Going bankrupt does have short-term advantages such as ceasing debt collection activity but also has many long-term consequences such as affecting certain career choices, future borrowing and even being allowed to privately rent a home.

image Annual personal insolvency activity in Australia Author provided

My research found that bankruptcies are the result of many interacting factors such as peer pressure, advertising tactics, commission-driven loan selling, and relationship breakdown.

Debtors struggling to repay their debts are often not aware of sources of assistance, their rights and options such as accessing free and impartial financial counselling agencies. These could assist them to negotiate with their creditors and present a range of options such as challenging the debt, utilising financial hardship options such as a moratorium for 90 days, or using the free and independent Ombudsman services.

Despite a big investment by the Australian government in promoting these options they are not well known nor easily grasped. The forms and processes can be difficult. They are very difficult for those with additional challenges such as low levels of literacy, English as a second language, and not having access to a support network.

The act of falling behind with payments increases stress levels creating a cycle of making wrong decisions that further perpetuates debt. Against this complex maze of options and faced with ongoing contact from debt collectors, the research participants took the option of going bankrupt.

One bankrupt who participated in the research told how me how she paid A$1000 to a for profit debt management firm to help her complete the bankruptcy papers. In her emotional and stressed state of dealing with demands of debt collectors she was not aware that there was no fee to go to a financial counsellor who could have assisted her to complete the paperwork at no cost.

This participant was one of many who did not have to go bankrupt as she qualified to have her debts assessed for write off under the national hardship scheme. She did not have $1000 spare. She was advised by the debt management firm to stop paying her creditors and to direct the funds towards their firm.

This guaranteed the debts fell behind, making it harder for the debtor to change her mind. I asked her about the impact of going bankrupt. She said:

“The impact is huge with this, to the point where psychologically, you’re a bit of a mess actually. There were times there I could’ve gone close, you just take your life over it.”

The Australian government is proposing to reduce the term of bankruptcy from three years to one.The aim is to encourage entrepreneurs to take a risk without the fear of being locked out of the business and credit sector if it all goes wrong.

However only around 25% of current bankruptcies are business-related. Ordinary consumers are needlessly going bankrupt.

Reducing the term of bankruptcy does not reduce the stigma of having to actually go bankrupt. What does need to be reviewed is the system. It has few barriers to enter, is usually free and quick, but leaves lasting trauma for the participants.

Authors: Gregory Mowle, Lecturer in Finance, University of Canberra

Read more http://theconversation.com/going-bankrupt-is-a-life-changing-decision-so-why-is-the-process-to-do-it-so-easy-64971

INTERWEBS DIGITAL AGENCY

The Conversation

Politics

Closing the Gap Statement to Parliament

Mr Speaker, when we meet in this place, we are on Ngunnawal country. I give my thanks and pay my respects to our Ngunnawal elders, past, present and importantly emerging for our future. I honour...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Alan Jones

ALAN JONES: Prime Minister, good morning.    PRIME MINISTER: Good morning, Alan.    JONES: I was just thinking last night when we're going to talk to you today, you must feel as though you've ...

News Company - avatar News Company

Prime Minister Bridget McKenzie press conference

PRIME MINISTER: Good afternoon everybody. The good news is that the Qantas flight is on its way to Wuhan and I want to thank everybody for their cooperation, particularly the Chinese Government as...

Scott Morrison - avatar Scott Morrison

Business News

Choosing the Right Coworking Space For Your Business

As the capital of Victoria in Australia, Melbourne is inhabited by millions of people and is known as one of the most liveable cities in the world. The latter is due to the city’s diverse community...

Sarah Williams - avatar Sarah Williams

What Should You Expect from A Carpentry Apprenticeship?

Those wanting to pursue a career in woodwork, whether it be to make furniture, construct buildings or repair existing wooden structures, will have to first commence a carpentry apprenticeship. This ...

News Company - avatar News Company

4 Tips To Choosing A Reliable SEO Company For Your Digital Marketing Agency

Working with a digital marketing agency Perth is the best bet in ensuring that your business is promoted well in the online space. If you are an app developer Perth, you may have to work closely wit...

News Company - avatar News Company

Travel

How to Be a Smart Frugal Traveller

You are looking through Instagram, watching story after story of your followers overseas at a beach in Santorini, walking through the piazza in Italy, and eating a baguette in front of the Eiffel ...

News Company - avatar News Company

HOW TO PREPARE FOR YOUR GRADUATION TRIP

Graduation is the stage of life when a student receives the rewards of hard work of years. It must have taken sleepless nights and tiring days to achieve the task. Now, as you have received your cov...

News Company - avatar News Company

A Travel Guide for Vacations Overseas

There are two types of tourists. Of course, that's a sweeping generalization, and we could be talking about any possible part of traveling.  In this case, we're discussing those who stick to the ma...

News Company - avatar News Company

ShowPo