• Debtors cannot be forced into bankruptcy over debts of $10,000 or less. Previously, this limit was only $2,000.
• Currently, creditors have to give 7 days notice before taking legal action to recover a debt. Under the new laws, creditors would have to give 28 days notice.
• The legislation would make debt agreements more widely available by easing restrictions on asset, debt levels and income.

According to the press release, the bankruptcy reforms are designed to take the pressure off debtors and enable individuals to get back on their feet as soon as possible. But, in our opinion, the bankruptcy reforms are more like a band-aid solution that fails to address the underlying problems. Creditors can still take action to recover debts of less than $10,000. They just can’t force you into bankruptcy. Instead, they might petition the courts to put a garnish on your wages, or send a Sheriff in to confiscate your stuff. So in reality, the legislation might reduce the number of involuntary bankruptcies, but it doesn’t actually provide an alternative solution for those under the $10,000 threshold.

Extending the bankruptcy notice period to 28 days might help a small number of people, but it’s hardly going to make a difference to those in severe financial strife. Bankruptcy is usually the result of several regrettable decisions made over a number of years. In most cases, an extra 28 days is not going to be enough time to fix several years worth of damage and avoid bankruptcy altogether.

Lastly lets look at debt agreements. The bankruptcy legislation proposes to reduce the individual bankruptcy risk by making debt agreements easier to get. Debt agreements are a valuable alternative to bankruptcy, and easing the restrictions would make them more accessible. But, in the past, anyone ineligible for a debt agreement could still apply for a personal insolvency agreement, which does almost exactly the same thing. So the new bankruptcy laws don’t actually make anyone better off.

In truth, it’s all just bankruptcy band-aid.

The Bankruptcy Act itself doesn’t restrict what types of work a bankrupt can engage in.  The restrictions generally relate to professional or governing bodies (eg Master Builders Association) bylaws. The professional bodies have bylaws stating that bankrupts can’t be members of the association and since you need to be a member to engage in that employment it effectively stops you from working in that profession.  The bankruptcy act does not prevent you from being an accountant.  However the CPA association will not let you be a member if you are bankrupt, and since you need to be a member of the CPA to practice, bankruptcy effectively prevents people from being accountants.  The other way bankruptcy can affect your job is by another legal act which stipulate that bankrupts cannot engage in that employment.  The ASIC Act prevents bankrupts from being company directors, the Queensland Gaming Act prevents bankrupts from holding gaming license or working in casinos.

While you may need the protection of Bankruptcy to help you get past insurmountable debt.  You should take into account the impact that bankruptcy will have on your future earnings which may extend beyond the bankruptcy period if your profession is taken into account.  It may be that you have no other option but to file for Bankruptcy.

The following professions are effected by bankruptcy.

• Accountants

• Builders

• Company Directors

• Councillor (local government)

• Defence Force Personal

• Electricians, Plumbers, Gas Fitters (not if employed by someone else)

• Escorts/Prostitutes

• Private Investigators

• Justice of the Peace

• Those with Liquor Licences

• Members of Parliment

• Police

• Real Estate Licence (Only those with a licence not those opperating under someone else’s licence)

• Pawnbrokers

• Second Hand Car Dealers

• Security Guards

• Solicitors

• Tax Agents

• Licensed Travel Agents (not people working in a travel agency)

• Gaming Licenses

Before filing for bankruptcy you should consult your professional body, governing body or HR department.  Typically you can do this anonymously.  In many cases you will be able to continue your profession with certain restrictions imposed during the bankruptcy period.  For example: if you are a Real Estate Agent you may be able to continue as long as you don’t control a trust account. But these conditions vary from profession to profession and state to state.

[Bankruptcy] [Debt Consolidation] [Debt Consolidation Loans]

So what is a debt consolidation loan?

Should you consider applying for one?

Sometimes, the best way to explain something is through example. So we have provided a short case study to show exactly what a debt consolidation loan is, and how you might benefit from one.

Consider the case of Carol…

Carol is a 25 year-old retail assistant with $2,500 in credit card debt. The debt is spread over 3 different cards, and each card has a different interest rate and payment date.

• Card 1 has an interest rate of 15% per year, to be paid on the 1st of each month.
• Card 2 has an interest rate of 12% per year, to be paid fortnightly.
• Card 3 has an interest rate of 18% per year, to be paid on the 19th of each month.

In her current situation, Carol is paying an average of 15% interest per year. The amount owing on her debt keeps going up, and she is having a hard time just making the minimum repayments. A debt consolidation loan could be an ideal solution for her.

As its name suggests, a debt consolidation loan “consolidates” all individual debts into a single amount, with a single regular repayment, over a single time period. Typically, consolidation loans have a much lower interest rate than credit cards or pay-day loans. They can also be repaid slowly (typically over several years), which removes the stress of rapidly-rising interest.

So Carol gets fed-up, and applies for a debt consolidation loan with Debt Mediators Australia. She now has a single loan worth $2,500 instead of three separate debts. Carol has 3 years to pay it off, at an interest rate of only 9% per year. Her monthly repayment are less than half of what they were previously, and she’s actually managing to save money for the first time in years. She plans to put the savings towards buying a house one day.

If your personal situation is at-all similar to Carol’s, you too could benefit from a debt consolidation loan. Click the debt consolidation tab for more information.
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What are Bankruptcy Income Contributions?

The Bankruptcy Act imposes certain restrictions in order to ensure that where appropriate creditors do receive some money where appropriate. These restrictions are not designed as a punishment merely to ensure that people are not trying to avoid their debts through bankruptcy.

How Long do Bankruptcy Income Contributions Last?

Bankruptcy is broken into two periods, the “undischarged bankruptcy” period lasting 3 years and a ”dishcharged bankruptcy” period lasting a further 4 years. During the “undischarged bankruptcy” period the restrictions, including income contributions, imposed under the Bankruptcy Act apply. During the “discharged bankruptcy” period the record of bankruptcy appears on credit records but no restrictions apply.

How are Bankruptcy Income Calculations Calculated?

Bankruptcy income contributions are a portion of income paid to creditors during the “undischarged bankruptcy” period. The Federal Government Department, ITSA sets “bankruptcy income thresholds” above which 50% of this income is paid to creditors. The “bankruptcy income thresholds” are updated quarterly based on a similar calculation to pension adjustment.

The income contribution is calculated on after tax income. Non-taxable income like child support and family tax benefit (FTB) is not included in the calculation. The “bankruptcy income thresholds” are a sliding scale based on the number of dependants.

Current Thresholds

NB: Dependants are defines as someone who earns less than $2942.00 per year

Example 1 Calculation

John earns $850 a week after tax. He has no dependants.

$850 – $804.30 (bankruptcy income threshold) = $45.70, 50% = $22.85

John’s Bankruptcy Income Contribution = $22.85 per week for 3 years

Example 2 Calculation

Lucy has one dependant she earns $949.07 a week after tax. She also receives $112 a week child support and $50 per fortnight in FTB.

Taxable income $949.07 - $949.07(bankruptcy income threshold) = 0, 50% = 0

Lucy’s Bankruptcy Income Contribution = $0.00 per week for 3 years

Bankruptcy Income Contributions and Child Support

Child support is non-taxable income. It is paid out of after tax income by the non-custodial parent to the custodial parent for the child. If you are paying child support but do not have any dependants for taxation purposes the Zero Dependant “bankruptcy income threshold” applies but the child support is added on to your threshold to determine your “bankruptcy income threshold”.

Child Support Example

Michael earns $1177.76 per week after tax. He pays $412.00 a week in child support for 4 dependants.

Income threshold = $804.30 + $412.00= $1216.30

Taxable income = $1177.76 – $1216.30(bankruptcy income threshold) = negative $38.54, no money over threshold

How are Bankruptcy Income Contribution Payments Made?

Income contributions are collected by the bankruptcy trustee who is appointed by ITSA to ensure that creditors receive all the money they are entitled to under the bankruptcy act. A forward projection of income is made and an estimate of bankruptcy income contributions is made by the bankruptcy trustee. The bankrupt generally pays these funds into a trust account. If the payments are not made the bankruptcy can be extended by up to 5 years. At the end of the year the bankruptcy income contributions are assessed against actual income and a refund, or bill may be issued, similar to a tax refund.

Bankruptcy Income Contributions and Tax Refunds

The first tax refund that is received during the undischarged bankruptcy period will be kept and distributed to creditors. This income was earned before the bankruptcy and thus is after tax income. Future tax refunds will generally be able to be kept.

[Bankruptcy] [Debt Consolidation] [Debt Consolidation Loans]

Brisbane-based firm Debt Mediators Australia released an “Online Dishonor Fee Ssurvey” results indicating dishonour fees are pushing many Australians into bankruptcy.

Two-thirds of survey respondents said dishonour fees prevented them from making their debt repayments on at least one occasion. It also highlighted how dishonour fees impacted on their capacity to pay bills regularly

Debt Mediators senior insolvency consultant Ben Paris was not surprised by the results.

“Our client’s income generally just manages to cover their expenses,” Mr Paris said.
“Many have borrowed heavily in the past and their wages have failed to keep pace with the rising cost of living.
“A dishonour fee might be an annoyance for most people but for someone in their situation missing one payment means they’ll never catch up.”

“Most respondents incur a dishonour fees every month ranging from $26 to $50 per direct debt, it’s money they just don’t have.”

“We regularly see clients bank statements with $200 or more being paid in dishonour fees per month and these survey results really back that up” he said.

Recently released Reserve Bank figures show how profitable dishonour fees are for Australian banks. In 2008 Australians banks collected $961 million in dishonour fees, or an average of $43 per Australian.


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Back Ground On Credit Cards

Credit cards are the most profitable products for banks and other finance companies. The first credit cards were released by specific companies, mainly petrol companies to traveling clients. The first card that you could use at multiple locations was developed by Frank X McNamara the founder of “Diners Club” in 1950, with the idea of consolidating multiple cards into one facility. Bank of America credited the Americard in 1958 which became the Visa network. With thousands of banks in America credit cards quickly became the easiest way to spend money as you might not have access to YOUR bank (no atms). This fueled to the rapid adoption of the credit card in America. The first credit cards were “charge cards” and the whole balance had to be paid off every month. What we think of as a “credit card” is actually a “revolving line of credit” combined with a “charge card” which allows a customer to only pay the interest (minimum payment) instead of the whole balance. This is lot more profitable.

By the 1980’s it was quickly become apparent that credit cards were the most profitable business to be in. Companies like GE which had been a manufacture entered the card market. The competitive market lead to credit cards being advertised just like any other consumable. TV Advertisement, junk mail and pre-approved credit card offers. Credit card adoption is now almost universal. Today there are 4 credit cards for every 1 person in America, while there is no equivalent data for Australia it can be assumed to be similar.

Why is Credit Card Help so Important?

With aggressive marketing and an the easy availability of credit cards Australia’s credit card debt in 2008 stood at $43 Billion. The minimum payment on these cards would be 860 million a month or $10.3 Billion a year. The minimum payment on Australia’s credit card debt accounts for 1% of GDP (the entire earnings of every Australian added together).

Example:

• Australia’s Annual Minimum Credit Card Payment 2008 $10.3 Billion

• Australia’s Total Military Expenditure in 2008 $26.4 Billion

Currently Australia has an average of $2000 in credit card debt. The scale of credit card debt means that Australians are particularly susceptible to credit card stress should their income reduce as in a financial crisis. Credit Card debt tends not to be evenly distribute through the community with those who are least able to afford it being forced to use it to for unexpected expenses. There is a large amount of political pressure currently on credit card companies to assist their clients when they fall into financial difficulties. A unified national consumer legislation is about to be based ensuring that voluntary hardship are mandatory.

Specific Government Credit Card Help

In 1996 the Commonwealth Government introduced legislation specifically with unsecured debts (mainly credit card debts). This option has become increasingly important due to rising rates of insolvency. Insolvency referrers to not being able to afford your current financial commitments. This has increased due to a variety of factors; banks increasing credit limits with out exploring affordability, dramatic increases in the cost of living, reductions in employment or overtime. Many people who where previously able to afford their debts are finding themselves insolvent. Credit cards help through Debt Agreements allows interest to be frozen and whatever proportion of the debt that is unaffordable to be written off.

The Benefits of Credit Card Help

Credit card help through debt agreements works in the the best interest of both the Creditor and the client. This allows the client to repay what they can afford and allows the creditor to minimize their loses.

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Most people trust the bank to assess if you can afford the loan. We created this calculator to help you assess if you can actually afford your debts. It will help you consider EVERY expence. IF you can afford your debts it will also calculate how long until your debt free. If you can’t afford them it will identify that you’re insolvent. Insovent simply means your income is less than your expences.

Being insolvent is an increasingly large problem. Banks routinely offer to increase credit limits, people borrow their way out of difficulty through debt consolidation and mortgage refinancing, the cost of living has risen substantially and incomes have gone down due to the global recession. The bottom line, however is; if you can’t afford your current financial commitments you’re just “rearranging the deck chairs on the Titanic”.

If your expenses are more than your current income Debt Consolidation in not an appropriate solution. It won’t address the basic problem that you can’t afford the debt, at best it will delay the inevitable. The commonwealth government has legislated 2 solutions for people in your situation; Debt Agreements and Part 10 Agreements. These allow for you to only repay a portion of what you owe based on how much income you have left AFTER your expenses.

Please use our calculator to find out: Are you insolvent?

Insolvency Calculator

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Debt Relief Historically

Debt Relief is mentioned in the Book of Leviticus, in which God councils Moses to forgive debts in certain cases every Jubilee year. Islam forbids lending with interest even today, while the Catholic church only allowed it from 1822 onwards, and the Torah states that all debts should be erased every 7 years and every 50 years. Debt Relief as a religious concept was therefore associated with the prevention of slavery.

Debt Relief in Modern Context

Debt Relief is embraced in a modern country through the legal mechanism of Bankruptcy. As debt will increase through time if it is not repaid faster than the interest accrues and individual may find themselves in a situation were they will never be able to repay a debt. This would prevent the individual from covering their own cost of living and may lead to multi-generational debt, essentially this would create indentured servitude. The benefit for a society to engage in Debt Relief though the legal mechanism of Bankruptcy is that it actually decreases the burden on the state as the individual is able to support themselves. As long as some form of bankruptcy debt relief exists within law it places the responsibility on the creditor to ensure that they lend to those who can repay the debt.

Other debt relief options available include Debt Agreements. Debt Agreements don’t relieve all of the debt but prevent interest from accruing and will generally result in a proportion of the debt being forgiven. This allows for the debt to be repaid in proportion to an individuals capacity to repay.

Debt Relief Arguments Against

It may amaze you that there are actually opponents of debt relief/bankruptcy who argue against it. The argue that it is essentially like giving people a blank cheque. Essentially they ague that debt relief will encourage irresponsible spending practices. Only when people are accountable for their actions, will they decide to change their behavior.

For further information of Debt Relief options available for individuals in Australia please refer to the Debt Agreement and the Bankruptcy sections.

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Debt Consolidation Repayments

Most people associate lower payments with consolidating your debt this will enable you to determine exactly how low the repayments will be.  In some instances your repayments might increase.

Debt Consolidation Total Payments

The biggest danger with debt consolidation is turning short term debts into long term debts.  If you consolidate a personal loan into a home loan you will increase the term by up to 23 years resulting in you repaying much more.  With the cacluator you will be able to identify what your total payments will be.

Debt Consolidation Time to Debt Free

It’s important to determine exactly how long you will be repaying the debt for.  Will you be able to maintain the repayments for that long?

Debt Consolidation Calculator

Criticism of Debt Consolidation Loans

Debt consolidation loans have received a lot of criticism lately.  One concern is “churning” churning involves a situation where a borrower can’t afford the loan and refinances through multiple lenders until the equity in a property is eaten up.  The best situation would have been for the individual to sell their house and start a fresh. It can also refer to a lender provide someone with credit cards and then consolidating there debt into a personal loan so that the individual can then afford to spend more on their credit cards thereby increasing their level of debt and therefore the profit of the lender.

Debt consolidation loans sometimes only treat the symptoms of debt and do not address the root problem.

Debt consolidation loans may lead to the borrower repaying more because short term debts like personal loans maybe consolidated into mortgages.

Debt Consolidation Loans: Three Main Types

Unsecured Debt Consolidation Loan/Personal Loan

This is the main thing people think of when the think about Debt Consolidation Loans.  There is no asset used as collateral for the loan so it’s referred to as an unsecured loan.  Debt Consolidation Loans are available from a range of lenders including Banks, Credit Union and Building Societies.

Term

• Maximum 7 years

Maximum Amount

• Maximum $50 000

Credit History

• Must be clean

Interest Rates

• Please see our current average interest rate page.

Secured Debt Consolidation Loans

Some lenders, particularly small lenders may wish to use a car or other asset as collateral for the loan.  This gives the lender added security that the borrower will repay the debt.  Contrary to popular belief reductions in interest rates for this seldom occur.  The property just give the lender added assurance

Term

• Maximum 7 years

Maximum Amount

• Maximum $50 000

Credit History

• Must be clean

Interest Rates

• Please see our national average interest rate pages

Mortgage Debt Consolidation Loan

If a borrower has a  house they should consolidate it into the mortgage with a couple of conditions.  There is concern that this will make the house more at risk to lenders.  If the borrower doesn’t pay ANY debt the lender can pursue them through the court and have property sold.  This being the case the borrower might as well get access to the lower interest rate that a debt consolidation mortgage will provide.

Term

• Maximum 30 years

Maximum Amount

• Minimum $30 000

Credit History

• Can obtain a mortgage is there is “bad credit”.  A penalty interest rate will generally have to be paid.

Interest Rates

• Please see our national average interest rate pages

Debt Consolidation Calculator

Use our Debt Consolidation Calculator to see if debt consolidation is a good solution for you.
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