Most Common Ways That People Fall Into Personal Bankruptcy
- Author Ray Ethell
- Published January 14, 2023
- Word count 488
Main Causes of Bankruptcy in Australia
Personal bankruptcy is a fact of life in a capitalist economy. The ups and downs of the economy cause many households to enjoy prosperity before a rapid decline. In an era where most people live paycheck to paycheck, debt has become increasingly difficult to manage. Many people have little choice but to gain a fresh start through bankruptcy. Business failure, high-interest credit card and personal loan debt, and lack of insurance are three of the most common ways people fall into bankruptcy in Australia.
Without question, Business Failure tops the list. Many people wonder how to prevent falling into business-related bankruptcy, but unfortunately due to the risks and market pressures in Australia most businesses do not last more than 2 years. There are a few precautions people can take before starting out in a new business such as talk with your Accountant and prepare a Budget and a SWOT Analysis.
Credit Card or Personal Loan Unsecured Debt
For anyone who has struggled to pay off high interest credit cards or personal loans, it comes as no surprise that unsecured debt plays a major part in most bankruptcies. Often, people with high medical bills also have large credit card debt. When an illness strains the budget, credit cards often become the stop gap. If the debtor then cannot generate the income needed to pay off the cards, bankruptcy follows.
In an era where the majority of Australians live paycheck to paycheck, unexpected expenses or job losses often result in high interest credit card debt. The increased monthly obligations often result in additional financial strain, creating a vicious cycle of delinquencies. Once accounts fall behind, penalty interest rates and fees are added on, creating a situation where debt becomes unmanageable.
If you are in deep credit card debt, experts recommend considering a debt consolidation loan before applying for bankruptcy. This should be the last resort if you lack the ability to pay off the debt, have no or limited nonexempt assets, are being harassed by bill collectors, face creditor lawsuits, or are subject to wage garnishments.
Lack of health insurance, auto insurance, home insurance, or renters insurance can trigger bankruptcy. For example, if you are found at fault for an auto accident and have no insurance, a court may subject you to ruinous wage garnishments. If a house fire erupted and you had no home insurance, the costs of repairs, on top of still owing the mortgage, could easily result in a loss of all your assets, leaving you with no choice but bankruptcy.
There is no way to fully insulate yourself from going bankrupt. In a topsy-turvy economy, many people find themselves stuck with unmanageable debt. The best protection is solid financial planning. By having an adequate emergency savings fund and insurance, you are better prepared to weather financial disasters and far more likely to stay out of bankruptcy.
Ray Ethell offers a wealth of experience to his clients, gained from 20 years in the Finance industry, and prides himself on providing reliable customer focused service. Non Conforming Loans specialise in non bank lending solutions such as discharged bankrupt home loans.https://articlebiz.com
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