Beware, bankruptcy is rising

Once you become a bankrupt all your debts are discharged, and you start with a clean slate, which is why some people declare themselves bankrupt. However, there are many disadvantages. Your assets, including your savings, home, car and other possessions are seized and sold by a trustee, appointed by the bank, to pay your creditors. Usually clothes and personal effects are not taken. While the process of bankruptcy is underway you may be required to provide part of your income to the trustee. Your passport is cancelled, which means you cannot travel overseas. Your credit history is ruined, making you unable to borrow money or apply for a credit card. You also cannot start a business. Bankruptcy can result in depression, despair, family breakdown and suicide.

At the moment rising interest rates and petrol prices are putting individuals and families under severe financial pressure, especially those that have borrowed heavily. The deregulation of the lending market has seen many new lenders becoming established. This has led to an aggressive lending practice, with lenders competing to gain customers.
Some people have over-borrowed and could face becoming bankrupts.

The credit card industry is also making a significant contribution to bankruptcy with some people unable to make minimum monthly payments. Levels of credit card debt have never been higher. Some people are at imminent risk of bankruptcy as they use one card to pay off another. This is an untenable position and sooner or later they face disaster.

Some homeowners have reinvested the equity in their homes and are facing bankruptcy as a result of falling property values and rising interest rates. An increasing number of these people are facing eviction from their homes. The NSW Attorney reports that there were 5316 evictions orders lodged in the last financial year, a 52% increase on the previous year.

The rising number of personal bankruptcies may affect lenders as well. Increasing numbers of bad loans have to be written off, costing banks and other lenders a lot of money. This may have a positive effect as the lenders may be forced to lend more responsibly and tighten lending criteria. But this may make getting a loan harder, and may shut some people out of the property market. Tighter approval criteria are also needed for the approval of credit card applications.

Governments need to take a more proactive approach to dealing with excessive levels of debts and should look at appropriate legislative measures. But individuals, families and businesses need to take responsibility for their own financial circumstances. Before applying for loans or credit cards, you should consider any existing debts, and work out whether you can afford additional, and whether you can weather likely interest rate and petrol price rises. You should do a budget plan, looking at where savings can be made. Then you can make a considered decision on borrowing.

Summary

• Bankruptcy is being unable to discharge your debts and can be voluntary or involuntary.
• Levels of bankruptcy are rising dramatically in Australia.
• Rising interest rates and petrol prices are driving some families towards bankruptcy.
• Extreme levels of credit card debt are also resulting in a large number of bankruptcies.
• People need to carefully consider their financial circumstances before taking out loans.

Article correct at its author date: Dec 2006. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

If you would like to display this article on your web site please email us.