Helpful Guides

If you happen to pass away, you might not be sure about what exactly happens to your debt.

It’s the unthinkable and sad reality of life: We all die. As morbid as it is, we need to talk about how it relates to your family after you pass.

It’s vital to know exactly what will happen, especially as you don’t want to place unnecessary burdens and responsibilities on those you love.

We’ve got the answer to the question you’re looking for regarding your debt obligations when you pass away, including potential recovery action.

There is some good news and we’re happy to share it with you.

Paying off debts when you die

Oustanding debts are handled by the executor of your estate. They will be responsible for paying out the debts which are left outstanding using assets which the deceased has left behind.

There might not be enough to disposal capital or cash to pay off these debts, so the executor must sell assets (cars and houses) to cover the shortfall.

But then, what if there is still not enough money after selling everything to pay back existing loans? Well, the debts are just usually forgiven. That is – debt collectors won’t go chasing your partner, kids, brothers or sisters or those very close to you.

Australian debt collectors know that this is a time of grievance and it’s a sensitive time, so they will generally leave everyone alone once they’ve got what they can possibly get.

Exceptions to the rule

Now, not in all cases to debt collectors just stop calling. Your loved ones might be responsible for paying debts if you die when:

• Debts are secured by assets (a car or house) that is owned by someone you love
• The debt is held in joint names with someone who is still alive
• An individual (your loved one) has guaranteed the debt

So in these instances, the lender might force your family members to pay your debts after you have died. Then again, we’re more relaxed in Australia and they will make exceptions, especially when the money owed might be a small amount which isn’t worth chasing after.

Joint debt: Credit cards

Probably the biggest issue where your debt still has to be repaid when you die is joint credit cards. If you have a credit card account in joint names and one of you dies, then the other person will need to pay off the debt like normal. This is sometimes still the case even if the deceased did all the spending.

Where you might get some leniency is where the Estate Executor comes along and uses assets of the deceased the clear the balance. When this happens, we would recommend closing the credit card and resorting to a debt-free lifestyle.

Joint debt: Owning a house together

You might own a house together and one of you dies. Your mortgage is still there and it needs to be paid by someone. It doesn’t have to be you but someone who might want to inherit the house down the track.

This is a secured debt that often gets sold off if there is no Will in place for the deceased. It’s important if you don’t want the family home to be sold that you go and get your Will created today. Through using one, you can dictate how debts are to be settled when you die.

In summary

It’s good to know what debts will still be lingering around once you die, especially as you’ll know how to manage them. This way you can ensure you aren’t leaving your loved ones with your big financial obligations.

Such obligations might cause difficulties during a sensitive time of coming to terms with such a loss.

We hope this has cleared things up. You’re welcome to drop a question in the comments box below.

You might have heard of personal insolvency as an option before, especially if you’re going through difficult times. Perhaps unpaid credit card repayments, loan arrears and bills which are well past their due dates.

In this guide, we’re going to talk about what is “personal insolvency” and the differences it has when compared to other types of debt.

There are of course numerous debt solutions out there and you should find the one that best suits your needs. Having trouble deciding? Perhaps get in touch with us today.

Australian personal insolvency

In Australia, personal insolvency agreements are legally binding. It’s a document where you declare an agreement between yourself and your creditors when you can’t afford to pay back your debts anymore.

This isn’t something you can do right away. If you’re looking at this as an option, then you might prefer some other strategies instead. In other words, you need to be struggling to make ends meet with your debt obligations for some time before a collector will be open to this.

How it works is that you’ll setup a payment arrangement over a defined period. This can be 4 years or 7 years. It really depends actually and some people even do less than 2 years.

The best part is that you can settle your hard-to-pay debts for less than what you owed. The balance will be officially written off (with a black mark on your credit history) and you’ll be able to get on with your life.

Where it applies

Choosing the path of personal insolvency is only for certain types of debts. These are typically unsecured debt like a credit card balance or store card (David Jones for instance), personal loans and payday loans. Some people even use these agreements for overdue rent, legal and accounting fees or medical bills.

What you can’t do is use a personal insolvency agreement for a secured loan like car finance or a mortgage on your house. This is because there is a physical asset that they would prefer to repossess and sell the asset (car or house) to recover the funds you owe. It’s easier from a debt recovery perspective and this is why the interest rate is lower for them.

Criteria for approval

As we previously said, you can’t go and just take out one of these for any old reason. There is criteria that individuals in Australia must meet for personal insolvency agreements to be eligible under the Bankruptcy Act.

The most important thing: You’ve got to be considered insolvent. This means you can’t actually pay anything when repayments are due, because you don’t have the money available to you.

Then you must meet any of the following:

1. Your unsecured debts total more than $111,675.21
2. Equity in your assets exceeds $111,670.21
3. You have both regular income and annually you earn more than $83,756.40 after paying the Australian Tax Office.

(These numbers are current since February 2018 and may have changed since)

As you can see, most people wouldn’t qualify actually. You need a lot of assets and income before going down this pathway.

Not only that, but people who choose this path are choosing a more relaxed way of dealing with their affairs. See – this isn’t the same as bankruptcy. It’s like a light-version where you still regain control and assets, such as your house or car.

Future challenges

Before you decide that this is a pathway you should go down, we recommend you instead look at the consequences and challenges that personal insolvency agreement in Australia could create.

Straight up – this is going to cost you money. You need to pay fees for this process, both upfront and ongoing.

Then we have the big problem: Your details, for the rest of your life, will be shown on the National Personal Insolvency Index. That’s permanent, man.

Not only this, but it will be shown on your credit file for around 5 years. You can expect it to knock down your credit score by many points.

If you then miss repayments, then the consequences can be severe. Creditors can take you to court and make you go bankrupt if they’re not happy.

Should you suddenly need a car to get you to and from work or replace some stuff for work, then this presents another challenge. Most banks will be unwilling to lend money to you, as it’s risky for them.

Personal insolvency agreements are yet another game of short term gains for long term pains for some people. Others do find them as a good option.

Getting started

The process to create your personal insolvency agreement is a bit complex actually. Remember that this is an official process, not some template from the internet that you just print off.

Here’s a brief outline:

1. Appoint your own Controlling Trustee
2. Allow your assets to be controlled by them
3. Let them research your financial affairs in-depth
4. Wait for them to prepare a report for your creditors
5. Also, they will create a proposed personal insolvency agreement
6. Within 25 days of appointment, a meeting will be called
7. During that meeting, your creditors will cast a vote based on the proposal
8. The majority must agree for it to be legally binding
9. Once approved, you might be released from debt obligations
10. Start paying your Controlling Trustee for the term of the agreement

The process does vary between Australian states and territories. This is why legal expertise and advice is best suited to you by someone who can assess your personal situation and make recommendations.

We often don’t recommend people down this pathway because of the complexities involved and the ramifications for your future. That said, for some people, it’s the best solution for their needs at this time.

How to avoid personal insolvency

You might want to avoid personal insolvency which is a good thing. We’d also recommend that you avoid bankruptcy too which has more severe consequences.

Instead, what you can do is:

1. Reduce monthly expenses. Stop buying expensive stuff and cancel subscriptions that you don’t need.
2. Consider a debt consolidation loan to help you reduce monthly payments. They can roll your credit card and car loan repayments into one payment that’s often less.
3. Use Gumtree or eBay to sell your unwanted stuff online. That’s an easy way to raise a few hundred dollars today.
4. Get yourself additional work, whether in the evenings or on weekends. That extra income can go towards the debt collectors without you needing to worry about potential Court action. Remember that personal insolvency is expensive as well with fees to pay.
5. Speak to the National Debt Helpline for free and unbias advice.

Those are some viable alternatives which you can start doing today, instead of jumping the gun and going for a personal insolvency agreement. These alternatives aren’t so likely to negatively impact your future and can create some quick wins on your journey towards a debt-free lifestyle.

In summary

We know you’re doing it tough. It’s not easy managing everything yourself.

You thought you can handle everything and it all caught up to you. It’s time you take action and do this seriously.

If you want some guidance, consider a 100% FREE Discovery call to assess your situation. We’d love to hear from you today.

So you’re having a really hard time right now with financial challenges and are considering bankruptcy, but can you still keep your car?

We have some good news for you and some bad news too.

The bad news is that bankruptcy can affect the rest of your life. It’s not something that we recommend unless it’s a total last resort.

Additionally, the ownership of your car might be lost. But the good news is that generally, it won’t be, otherwise just how will you get to and from work?

We’re going to talk about the potential impacts.

Bankruptcy and keeping your car

Are you sure you want to do this? We’re not so sure even though it’s a bleak outlook. Bankruptcy affects thousands of lives in Australia each and every year.

Can you keep your car if you go bankrupt? Maybe. There are ways to get around them taking your wheels away. We share several ideas and concepts.

You must meet certain criteria. This includes:

• How much your vehicle is worth. Generally, you can own a vehicle up to $7,900 in dealer-acquired value. The retail price on this is around $10,000 but can vary state-to-state.
• If you can take other means of transport. They won’t let you keep your car if you can catch the train or bus to and from work, or even jump on a bicycle. They assess your actual need to have a vehicle, as opposed to luxury desires. In other words, people in country areas are more likely to keep their car when under bankruptcy so they can get to and from work.
• The debt you owe on the car. If you have a car loan, then you’ll be allowed to keep the car under a bankruptcy declaration but you must continue making those monthly repayments.

Now let’s look at some common questions we keep getting.

Can you buy a car once bankrupt?

Yes – you can buy a car after you’ve declared bankruptcy. The issue is that you’re generally only allowed a cheap vehicle to get around, and only if there are no viable or alternative means to get to and from work. You will need to tell them the value of the vehicle and why you’re buying it, but more importantly, how you got ahold of the cash for it.

Will they take my car away?

They will take your car away to repay existing debt collectors if there is value for them. For example, a newer luxury Mercedes with nothing owing on it might be repossessed but that 20-year-old Commodore in the driveway with broken fuel caps probably isn’t something they will chase after unless you spent a considerable amount towards modifications and upgrades.

Is it like the US where they tow my car away when I’m not looking?

Yes, it can be like that, but there is a process that these debt collectors need to go through. To be honest, it doesn’t happen that much in Australia, especially for cheap cars. They will want to know that they can make a profit off the sale of the car before they send a tow truck to your house to legally steal your car away and sell it.

So I can still go to work?

Yes – it’s expected that you will continue work and get on with your life. You can keep a car which has a car loan if they know that you are still going to make those repayments and this is a primary reason why you’re going to work. They aren’t heartless and will listen to your situation, but you can’t really own a luxury car.

Can I get my car back from them?

Well, that depends. They’ve taken it away to sell it and recover some money that you weren’t paying. So unless you can come up with the full amount for the car within a few days, it’s probably unlikely. That said – if you left removable things in there like baby seats, then yes, they have to give that stuff back to you without damage. The same goes for common electronics like plug-in dashcams.

In summary: keeping assets during bankruptcy

We see bankruptcy as a total last resort. It’s certainly not something we encourage here at The Debt-Free Community. We just see better options for you, especially if you need a vehicle to get you to and from work or to see your kids.

People often take this as an easy way out. It’s not. If you want to keep your car, then a debt consolidation loan might be a viable option for you.

We might be able to help you so reach out to us now.

Likewise, we praise the free information on the MoneySmart website. ASIC talks about repossessed goods and how you can avoid having your car taken away by tow trucks. Check it out!

A Part 9 Debt Agreement is the most common type of agreement which is legally binding as an arrangement between yourself and creditors.

This formal arrangement outlines what you agree to repay to your creditors over a set timeframe. This could be 3 or even 5 years, depending on the individual.

Creditors are generally happy with these arrangements when they see what you can reasonably afford to pay. The Bankruptcy Act 1966 permits this agreement and officially it’s known as a Part 9 Debt Agreement in Australia.

How to become eligible for Part 9 Debt Agreements

In order for you to qualify, you must meet some certain criteria. These include:

1. You’ll need to be insolvent. This means that you just can’t pay back your debts right now.
2. You haven’t entered into a bankruptcy agreement in the past, the same or any other type of debt agreement
3. You haven’t been given authority to use a Part 10 Debt Agreement at any time over the last 10 years
4. Remain under defined restrictions that the Australian Financial Services Administration specifies for unsecured debts, post-tax income and assets for the following year.

The best types of debts

The Part 9 Debt Agreement doesn’t work for all types of debts.

Here’s what they can include:

1. Expensive medical bills
2. Overdue credit cards
3. Store cards (David Jones etc)
4. Personal loans

These are all unsecured debts. Secured debts like car loans and mortgages must be paid to the bank like normal. That is – you can’t use a Part 9 debt agreement to escape from these.

If you have toll fees, speeding fines and parking tickets, then these will also need to be repaid like usual. These debt agreements aren’t really viable for small debts of a few hundred dollars.

Are they worth it?

It really depends on your situation. For some people, they are a terrible idea because the individual would already be well equipped to tackle the debts on their own. In other words, they don’t need these complexities at all.

Often you can ask for a payment plan or extension from a creditor directly. You can declare financial hardship especially if you have a sick family member or lost your job recently.

For others, however, they can be the absolute saving grace. The chance for them to start fresh and on the road towards a 100% debt-free lifestyle. That’s what we preach here often. 🙂

How will you know for sure? You need to talk to a professional. You can get in touch with us or speak with someone who knows your situation very well and can advise on your individual circumstances.

One thing is that you won’t have the ability to take out any loans under the Part 9 debt agreement. The dog got sick and you need to pay the vet bill? Need a car for work? Well, you’ll have to work out how to do that yourself without taking out a loan.

Next steps

We like Part 9 debt agreements but only when all other options have been exhausted. Have you considered debt consolidation? Most people benefit more from this than any type of bankruptcy documentation, especially as you can still take out a loan for emergency reasons in the future.

Another option is to get additional work or borrow a small amount from friends. This can help you get by for a little while.

Remember that debt collectors are real people and while this is a serious situation, you need to remember that they have a heart. Communicate with them and explain your situation or get us to talk to them on your behalf.

Because we know how harassing the debt collectors can be. Let us help you through these challenging times. ?