If you have more debt than you can afford to repay you might need to consider personal bankruptcy, but that will depend largely on what types of debt you have. Declaring bankruptcy does not release you from being liable to repay non-provable debts or secured debts.
Secured debt
If you decide to keep the asset subject to security you will be obliged to continue to pay for it even if you declare yourself bankrupt. The risk you need to carefully consider is if you cannot afford to pay for the secured asset (ie a car lease) and you wish to surrender the asset at some later time (ie some time after you declare bankruptcy) and the secured creditor suffers a loss on the sale of the asset then the secured creditor may claim that you are still liable to pay any shortfall (despite your bankruptcy). To avoid this risk we always advise our clients that if they have an asset subject to security (ie a car) and the amount outstanding exceeds the value of the asset then it is best to surrender the asset before bankruptcy and allow the secured creditor to sell the asset and claim in the bankruptcy for the shortfall. This way it avoids any risk that you may continue to be liable to pay any shortfall after you declare bankruptcy.
1. Credit cards
The most common type of debt in bankruptcy is credit card debt. There are no limits on how many credit card debts you can include in your bankruptcy.
2. Store cards
Store card debts are becoming more popular. Some stores like (Myer, David Jones and Harvey Norman) offer store cards to eligible applicants. These store cards allow you to purchase goods from the retailer. The store card is often provided by a finance company (like GE Money). If you go bankrupt any unpaid balance on the store card can be included in your bankruptcy.
3. Personal loans
Many banks and finance institutions offer personal loans to eligible applicants for many different purposes (like holidays, to buy cars etc). If you have a personal loan the unpaid balance on it can be included in your bankruptcy.
4. Guarantee debts
If you have guaranteed a debt for another person (ie a spouse or a family member) or you have personally guaranteed a business debt and the debt has not been paid and you wish to declare yourself bankrupt, then you should list in your bankruptcy application all parties you have provided a personal guarantee. Your bankruptcy trustee will then write to all parties you have provided a personal guarantee to and provide them with the opportunity to claim in your bankruptcy.
5. Non- provable debts
You need to be aware that some debts cannot be included in your bankruptcy. These are known as non-provable debts and are best explained in our post talking about non-provable debts. Before you file for bankruptcy it is best that you consult with a bankruptcy expert to establish what debts can be included in your bankruptcy.
In conclusion, personal bankruptcy can provide relief to individuals overwhelmed by unsecured debts, but it is crucial to understand the nature of your debts before taking this step. Secured debts, such as car loans or mortgages, pose specific risks since declaring bankruptcy does not absolve you from liabilities associated with these debts if you retain the asset. It is often advisable to surrender any asset with a secured debt before bankruptcy to avoid potential liabilities from shortfalls.
Credit card debt remains the most prevalent type of unsecured debt included in bankruptcy. With no limits on the number of credit card debts that can be discharged, individuals burdened by high-interest credit card balances often find significant relief through bankruptcy. Store card debts, which have become increasingly popular through retailers like Myer, David Jones, and Harvey Norman, are also eligible for discharge in bankruptcy, offering additional relief for consumers.
Personal loans from banks and financial institutions, whether taken for vacations, car purchases, or other purposes, can also be included in bankruptcy filings. This provides a way to manage substantial debts that may have accumulated over time, often with high interest rates and stringent repayment terms.
Guarantee debts, where an individual has co-signed or guaranteed another's loan or business debt, are also subject to inclusion in bankruptcy. This ensures that all potential liabilities are addressed, providing a comprehensive solution to debt management.
However, it is essential to recognize that not all debts can be discharged in bankruptcy. Non-provable debts, such as certain fines, penalties, and some types of tax obligations, remain the responsibility of the debtor. Consulting with a bankruptcy expert is crucial to identify which debts can be included and to navigate the complexities of the bankruptcy process effectively.
By understanding these distinctions and seeking professional advice, individuals can make informed decisions about bankruptcy, ultimately aiming for a fresh financial start while mitigating the risks associated with various types of debt.
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