You’ve probably heard the conversations assuming that bankruptcy is caused by over-spending, reckless living and poor saving habits. But the experts are warning this is not always true. When it comes to many Australians being unable to pay their debts, there are more causes to be aware of than you might realise.
Take a look at some of the most common reasons for bankruptcy that registered bankruptcy trustees like Aravanis often see:
1. Losing a loved one
The loss of a loved one can put a huge strain on your life, working abilities and budget. Many families fork out on average $4,000 to $15,000 on funeral arrangements alone. It’s already stressful enough when dealing with the passing of a loved one, the last thing you need is financial stress when you’re trying to grieve.
2. A relationship dissolving
When relationships end, costs associated with moving out, legal fees, spousal maintenance or extra child support expenses can wreak havoc on your already emotionally tough situation.
Aravanis client Sarah from Tasmania filed because “My ex-partner left me in a terrible financial state. I was incredibly stressed and worried about my future, losing my home”.
3. Property assets losing value
Whether it’s your own home, or an investment property, some regions are more prone to dropping in value. Previously booming rural mining locations for example, have been known to lose their value during an unexpected turn in the market, like what has been seen in Darwin and Perth with the annual dwelling percentage value change in 2017 being -2.30% and -6.5% respectively . Leaving homeowners with bills to pay and little to no equity or worse; a significantly over-encumbered property
When faced with potential losses in the hundreds and thousands (or more!) coupled with limited job opportunities in the area, many homeowners are choosing to relocate for better work prospects - leaving their former residential properties to the mercy of a down-turned rental market. But when the rent doesn’t even come close to covering half of the monthly mortgage repayments, you’ve already relocated for a new job and have rent to pay on top – your former dream-home can quickly become a nightmare investment property.
Aravanis client Robert from NSW filed because ‘‘I had a lot of credit card debt, and a bad investment where my repayments had doubled. I had sold the apartment, but still couldn't get on top of the finances. I was avoiding the phone, constantly stressed, and feeling a bit hopeless”.
Being made redundant or becoming unemployed is one of the major causes of bankruptcy. When you lose your main source of income, your debts can start to pile up and it can feel impossible to get back on your feet.
5. Over commitment of credit
How much is too much? While a debt of $20,000 might be manageable for some, for others, it’s too much. There’s no magic number, and over-committing to credit while grocery shopping, buying school uniforms or paying rent can add up quickly.
Aravanis client Bryan from NSW opted for bankruptcy because “We had a very large amount of unsecured debt which we had accumulated over a number of years; we were anxious, stressed and sick.”
8,870 people indicated that “Excessive use of credit facilities’’ was the main cause of their insolvency during the 2016-17 financial year; the largest amount for any cause of personal insolvencies in Australia.
Gambling addiction can have a major impact on your financial situation, especially over a long period of time. With or without seeking professional help for addiction, unsecured debts like credit cards and personal loans can often add fuel to the fire when trying to tackle a gambling problem.
If you or someone you know is suffering from a gambling addiction, please call the Gambling Helpline (1800 858 858 – any time 24 hours).
7. Family expanding
Sometimes new bundles of joy can be financially challenging - beyond what you can handle. When your family expands, and expenses increase; financial instability can become a reality. For some, this can be even more detrimental when a partner who was working before, is now on unpaid or low-paying paternity leave.
Aravanis client Jade from Victoria filed because “We had lots of personal loans and credit cards. We found since having a house loan people would throw money at us. We just kept getting more and more in debt and using one credit card to pay the other. We found out we were going to have another mouth to feed and that was what pushed us over the edge. I was scared and depressed, my husband and I argued a lot, it felt like everything was falling apart”.
There are many varied reasons why people turn to bankruptcy. If you’re considering this option, remember that you’re not alone and there is plenty of information available, as well as organisations who can assist you with the process and provide information tailored to your specific circumstances.
About the authors
Aravanis is one of the largest registered bankruptcy trustee firms in Australia.
Aravanis offers free bankruptcy-related information that’s specific to your individual situation.
If you’re considering bankruptcy, give Aravanis a call on 1300 369 108. As one of Australia’s leading bankruptcy firms, they can take you through the options that might be available.