Most Common Ways That People Fall Into Personal Bankruptcy

• Author Ray Ethell
• Published January 14, 2023
• Word count 488

View author’s other articles

Title: Understanding the Main Causes of Bankruptcy in Australia

Author: Ray Ethell
Published: January 14, 2023
Word Count: 488

View author’s other articles

Bankruptcy is a common reality in a capitalist economy, driven by economic fluctuations that can lead households from prosperity to decline. In today’s world, where many people live paycheck to paycheck, managing debt has become increasingly challenging. Consequently, bankruptcy has become an option for those seeking a fresh start. In Australia, the main causes of bankruptcy can be attributed to business failure, high-interest credit card and personal loan debt, and lack of insurance.

Business Failure:
Undoubtedly, business failure is at the forefront of the list. Many individuals question how they can prevent falling into business-related bankruptcy. Unfortunately, due to the inherent risks and market pressures in Australia, most businesses do not survive beyond two years. However, some precautions can be taken before starting a new business, such as consulting with an accountant and preparing a budget and a SWOT analysis.

Credit Card or Personal Loan Unsecured Debt:
Unsecured debt, particularly from high-interest credit cards or personal loans, plays a significant role in most bankruptcies. Often, individuals burdened with high medical bills also accumulate substantial credit card debt. When an illness strains the budget, credit cards become a stopgap solution. If the debtor is unable to generate sufficient income to pay off the cards, bankruptcy becomes inevitable.

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 further exacerbate financial strain, creating a vicious cycle of delinquencies. Falling behind on payments leads to penalty interest rates and fees, making the debt unmanageable.

Experts recommend considering a debt consolidation loan as a potential solution before resorting to bankruptcy when facing overwhelming credit card debt. Bankruptcy should be the last resort when there is an inability to repay the debt, limited nonexempt assets, persistent harassment by bill collectors, creditor lawsuits, or wage garnishments.

Lack of Insurance:
The absence of health insurance, auto insurance, home insurance, or renters insurance can trigger bankruptcy. For instance, being at fault in an auto accident without insurance may subject individuals to ruinous wage garnishments by the court. In the event of a house fire without home insurance, the costs of repairs, coupled with ongoing mortgage payments, could lead to the loss of all assets, leaving bankruptcy as the only viable option.

Conclusion:
While it is impossible to completely shield oneself from bankruptcy, solid financial planning offers the best protection. Building an adequate emergency savings fund and obtaining appropriate insurance coverage help individuals better navigate financial disasters and significantly reduce the likelihood of bankruptcy.

In summary, understanding the main causes of bankruptcy in Australia allows individuals to take proactive steps to manage their finances, minimize risks, and work towards long-term financial stability.

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.

Business Failure

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.

No insurance

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.

Conclusion

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.