At HLB Mann Judd, our consultees will often ask, 'what can I do before going bankrupt?'.
Bankruptcy is a significant financial step, offering relief from unmanageable debts but also bringing legal and financial consequences. While it can provide a fresh start, it’s not always the best or only solution.
Before deciding, it’s important to understand all avenues and assess whether an alternative approach may better suit your circumstances. For many individuals, structured debt solutions can provide relief while allowing greater financial control.
These alternatives may help protect your assets, minimise the impact on your credit rating and maintain business or employment opportunities.
Understanding Your Options Before Declaring Bankruptcy
Bankruptcy is a legal process where individuals unable to meet their debt obligations can seek relief, typically lasting three years and one day. It discharges most personal debts, offering a fresh financial start. Bankruptcy does, however, impose certain restrictions, such as limitations on asset retention and potential income contributions.
Being a serious financial decision, bankruptcy can have long-term consequences. While it provides relief from overwhelming debt, the restrictions and obligations may not be suitable for everyone.
If you are struggling with debt but want to explore alternatives, there are other options that may help you regain control of your financial situation without declaring bankruptcy.
Avoiding bankruptcy can mean:
- A reduced impact on your credit rating
- The ability to retain assets
- Continued business operation
- Lesser (if any) travel restrictions
- Great overall control of your financial decisions
Alternative Debt Solutions
Before proceeding with bankruptcy, you can consider these alternatives:
- Informal Debt Negotiation – You may be able to negotiate directly with your creditors for reduced payments, extended repayment terms or even partial debt forgiveness. Many creditors prefer negotiating over the uncertainty of bankruptcy.
- Debt Consolidation – If you have multiple debts, consolidating them into a single loan with a lower interest rate may make repayments more manageable.
- Debt Agreements – A legally binding debt agreement (under Part IX of the Bankruptcy Act) allows you to make structured repayments to creditors without declaring bankruptcy. This option is available to those who meet specific income and debt thresholds.
- Personal Insolvency Agreements (PIA) – A PIA (under Part X of the Bankruptcy Act) is a formal arrangement where you negotiate with creditors to repay debts in a structured way. This is typically suited for individuals with higher debts who do not qualify for a debt agreement.
Why Avoid Bankruptcy?
It is possible that an alternative solution is, in fact, better suited to your situation. This may be because:
- Unsecured Debts Are Below a Manageable Threshold - If most of your debt consists of unsecured loans (such as credit cards, personal loans and medical bills) and falls below the threshold for a Part IX Debt Agreement, a structured repayment plan may be a viable option. Bankruptcy is generally considered a last resort when debts are too large to feasibly repay under an agreement.
- You Have Steady Income to Support Repayments - Debt agreements require consistent income to meet agreed repayment terms. If you have a stable job or business income, these solutions may allow you to gradually clear your debts without the consequences of bankruptcy.
- Your Debt is Negotiable with Willing Creditors - If creditors are open to reducing or restructuring payments, debt negotiation may be a better choice. Bankruptcy removes personal liability for most debts, but creditors have little incentive to negotiate once bankruptcy is declared.
- Your Debts Do Not Qualify for Bankruptcy Discharge - Certain debts, such as court fines, child support and some tax debts, are not cleared through bankruptcy. If a significant portion of your debt consists of these, alternative solutions may be required to manage repayments effectively.
It is important to make an informed decision when pursuing a debt solution. Engaging a financial advisor will help you understand each which options are feasible in your particular circumstance.
Bankruptcy Assistance: How We Can Help
If you feel you are unable to meet your debt obligations, bankruptcy is not your only path to financial relief.
However, these difficulties rarely resolve on their own and the earlier you take steps to address your debt, the more options you will have available. Ignoring financial problems could lead to escalating penalties, legal action or forced bankruptcy initiated by creditors.
At HLB Mann Judd, we understand that these hardships can be stressful and overwhelming. Our team provide guidance on insolvency options, help you understand your legal obligations and explore alternative solutions that may help you avoid bankruptcy. Every situation is unique, so we work with you to find a solution tailored to your financial circumstances.
If you are considering bankruptcy and would like to know if an alternative debt solution is more suitable, please contact us on 08 9215 7900 for a cost and obligation free consultation.
