The Insolvency Insider

7000 small businesses are facing bankruptcy and 6000 workers are likely to loose their jobs after the collapse of the insulation installation scheme.  When the government introduced the home insulation scheme it dramatically increased demand for home insulation. This false demand was met by a dramatic supply side increase in the number of “insulation installers”.  This false demand was bound to end at some point it’s just happened a lot quicker than many people expected.

Small business owners have likely invested large amount of money in Cars, equipment, training and advertising.  Many will have borrowed against their homes to set up the businesses. These will be the first to face bankruptcy, loosing assets they have taken years to accumulate.   The second group of people facing bankruptcy will be insulation workers.  Unemployment is the number one cause of bankruptcy in Australia this will undoubtedly increase bankruptcy rates.

Many people, when finding themselves facing bankruptcy or serious financial difficulty, feel isolated and alone.  Many feel that if they file for bankruptcy, they will have been a failure.  Many people who file for bankruptcy go onto do great things; below is a list of famous bankrupts.  Amoung the list you will find three US Presidents, the founders of the biggest two car manufactors (Ford and General Motors), Alfred Nobel (founder of the nobel prize), Donald Trump and Nikola Tesla (the man who gave us electricity as we know it).   Bankruptcy is just something that happens; it doesn’t have to define you.

Abraham Lincoln – 16th President of the United States

P.T. Barnum – The Great American circus owner

Kim Basinger – Oscar-winning actress (1993)

Frank Baum - Wizard of Oz author

Miguel de Cervantes – Novelist; Don Quixote

Samuel L. Clemens (“Mark Twain”) – best-selling American author/humorist (1894)

Francis Ford Coppola – Oscar-winning film writer/director/producer (1999)

Daniel Defoe – Author; Robinson Crusoe

Walt Disney – Oscar-winning film producer, animation & theme park pioneer (1923)

Henry Dunant – Red Cross founder

William C. Durant – Founder of General Motors

Henry Ford – Automobile manufacturer

William Fox – Co-Founder of 20th Century Fox Film Corporation (1936)

Charles Goodyear – 19th century American inventor, who discovered how to vulcanize rubber

Ulysses S. Grant - 18th US President; Civil War general, best-selling American Author, face is pictured on the US fifty dollar bill (1884, after leaving office)

Johannes Gutenberg – Inventor of movable type

H.J. Heinz – Founder of Heinz Ketchup

Robert Kiyosaki – Rich Dad, Poor Dad author

Stan Lee - Comic book industry pioneer, co-creator “Spider Man,” “The Incredible Hulk,” “The X-Men” etc (2001)
William McKinley – 25th US President 1897-1901

Immanuel Nobel – father of manufacturer/philanthropist Alfred Nobel , who founded the Nobel Prize (twice – 1833/year Alfred was born, 1856/ when Alfred was 23)

Oskar Schindler- activist who saved over 1000 Jews from the Nazis

Nikola Tesla – Invented alternating current

Donald Trump – billionaire entrepreneur

Oscar Wilde – acclaimed poet and author

James Wilson – U.S. Supreme Court Justice 1789-1798

• One in every 845 people enter into Bankruptcy every year (One in every 2750 will get lung cancer)
• 85.5% of people who file for bankruptcy are employees
• The most common cause of bankruptcy is unemployment accounting for 30% of all bankruptcies, followed by over using credit
• Clerical or Office workers are the most likely to file for bankrupcy
• 73% of people who file for bankrupcty are older than 35
• 45% are older than 45
• 22% are older than 54

When it comes to clearing your debts, bankruptcy should be seen as a great last resort rather than an easy first option.

The great thing about bankruptcy is that almost all of your debts will be cleared – credit card debt, personal loans, tax debt, unpaid phone and utility bills and more. The only debts to remain will generally be court imposed fines and child support payments.

The reason bankruptcy should be seen as a last resort is that it can impose quite limiting constraints on your life that other forms of debt help do not.

Depending on your circumstances, your house could be repossessed and sold, your income could be docked and you could be prevented from traveling overseas in the immediate future. Bankruptcy  might also prevent you from working in certain professions or from directing a company for a period of time.

For some people, these will not be an issue but to make sure bankruptcy is right for you, talk to us first and get some sound advice. In many cases a debt agreement could offer you the relief you need whilst helping you avoid the restrictions that bankruptcy can impose.

In the previous post I was very Bah! Humbug! about Christmas spending.  But if history has taught us anything it’s that prohibition doesn’t work so I’m going to focus on harm minimization now.  So how do you minimise the damage that may get done this Christmas.

• Do not take a cash advance from your credit card- cash advances start accruing interest from the moment you withdraw the cash.  If you going to use the credit card better to spend direct from the plastic that way you’ll have a month interest free at least
• If you’re having difficulty paying a bill DO NOT stick your head in the sand- call the creditors and be straight up with them. “I’m sorry (insert electricity provider) I can not afford to pay the full amount this month, can I pay $x”.  You will be amazed at how negotiable they are.
• Remember your holiday pay has to last for the whole holiday, it isn’t a cash bonus!
• Beware of “interest free for X number of months” deals if you don’t pay them off before the end of the interest free period some of the contracts will have interest back dating from the begining of the interest free period.  Worryingly the minimum payment isn’t always enough to repay the debt in the interest free period.
• If you’re self employed/casual/sub contractor and your workplace shuts down for Christmas money might be tight in the giving season.  If you’ve got a hard time making ends meet your creditors are obliged to offer you Hardship Provisions.  Your banks might be able to give you a couple of months off from payments.

If you’re struggling financially chances are you might be doing some soul searching asking “how did I get here”.  Ben Franklin’s famous quote; “beware of little expenses, a small leak will sink a great ship”, might offer some answers.  For most of our clients this accurately describes their financial trouble.  They don’t notice the dollars and cents running through their fingers until it’s too late.  It’s not the big expenses that generally put people in trouble (though if you’ve got a second car that may be the culprit).  It’s the little expenses that you don’t notice that add up quickly.

Still don’t think that those little expenses or those “guilty expenses” could possibly be the reason? To put things in perspective I put together a table showing the expense, the daily cost, and what that would have been worth after 30 years invested in the bank.

As you can see it doesn’t take amazing investments and risky real-estate deals to be wealthy.  You just need to a couple of dollars saved every day.   The opposite is also true. Many people don’t see that little expenses on the credit card add up quickly.  I’ve put together another table to show what the same situation is like after only 5 years if a credit card was used to pay for everything.

As you can see the situation is markedly different.  Small expenses can add up quickly, so beware small expenses.

If you are not aware of the sordid story of a mile high encounter between Ralph Fiennes and Flight attendant Lisa Robertson. Their mid air tryst made head lines in January 2007. Lisa Robertson at the time of the incident was an undischarged bankrupt, having filed for bankruptcy in 2004 with disclosed personal debts of $460,000. On the 8th of December 2009 Ms Robertson was found guilty in a Victorian court or one count of concealing a large sum of money and one count of attempting to leave the country.

As a result of the mid air incounter with Mr Fiennes, Ms Robertson shot to fame. With different tabloid vying for her “tell all story” Ms Robertson closed a deal worth $201,000.00.

During the 3 years of bankruptcy all income over a certain income threshold goes to creditors. In Ms Robertsons case the threshold would have been approximately $42,000.00/year after tax. One would assume that Ms Robertson would earn at least that as Qantas flight attendent meaning that the whole $201,000.00 would have gone to her creditors.

Ms Roberts attempted to have the $201,000.00 paid to an unnamed third party in at attempt to defraud her creditors out of the bankruptcy dividends.

To make matters worse now “unemployed” Ms Robertson also attempted to fly to Thailand “to escape media attention”.
The bankruptcy act allows people to earn a reasonable amount of money while allowing creditors to recieve some money if the client is a high income earner or recieves a win fall.

Ms Robertson plead guilty to the charges and was sentanced to 100hrs of community service and ordered to undertake ongoing drug and alcohol assesment and treatment.

It is almost impossible to conseal money from Bankruptcy Trustees. The end result will be a criminal conviction and you’ll have to pay the money will go to creditors anyway