Bankruptcy is a big decision that can change your life, but in 2024, it’s still surprisingly easy to declare. With Australia’s rising cost of living and increased financial stress, more people are finding themselves on the edge of insolvency. But is declaring bankruptcy always the best option? This article breaks down the basics, the process, and other ways you can handle debt before considering bankruptcy.
1. How Bankruptcy Has Changed Since 2016
In 2024, personal insolvencies, including bankruptcies, have risen, though they remain below pre-pandemic levels. As of 2023, nearly 10,000 Australians declared bankruptcy(
Many of these people are dealing with the high cost of living, inflation, and rising mortgage rates. While the number is rising, some experts still argue that bankruptcy should be the last resort.
2. The Emotional Impact
Declaring bankruptcy often brings feelings of shame and failure, even though the process itself has become quite simple. Many people feel isolated and stressed by the idea of going bankrupt. While you may find relief from debt collectors, the emotional toll can be long-lasting, and the stigma of bankruptcy still lingers in Australia today.
3. The Process: Still Too Simple?
The process for declaring bankruptcy in Australia remains easy. You can download forms from the government’s website, fill them out, and submit them online—all in the same day. But is it too easy? Many people declare bankruptcy without exploring other options, which could help them manage their debts without taking this drastic step.
4. Alternatives to Bankruptcy
There are other ways to handle debt that don’t involve going bankrupt. Free financial counseling services, such as the National Debt Helpline, offer advice on how to manage debts, set up repayment plans, and even negotiate with creditors.
Other options include:
- Debt agreements: A formal agreement between you and your creditors.
- Financial hardship programs: Temporary solutions that allow you to pause or reduce your repayments.
- Ombudsman services: Help resolve disputes between you and creditors.
Unfortunately, many Australians aren’t aware of these alternatives or don’t know how to access them.
5. Be Careful with Debt Management Firms
Some for-profit debt management companies charge large fees to help with bankruptcy paperwork, which can make things worse. Many people who don’t need to declare bankruptcy are led down that path by these companies. Free financial counselors are available to help with paperwork, so avoid paying unnecessary fees.
6. Mental Health and Bankruptcy
The stress of being in debt can have a serious impact on your mental health. People who declare bankruptcy often experience depression and anxiety, with many feeling that the weight of their debt is unbearable. Getting support from financial counselors and mental health professionals is key to managing the emotional side of debt.
7. The Future of Bankruptcy in Australia
Looking forward, the Australian government is considering changes to the bankruptcy system, such as reducing the bankruptcy term from three years to one. While this might make it easier for some to recover, it won’t remove the emotional and financial scars that bankruptcy leaves behind. The best way to reduce bankruptcy filings is by increasing awareness of financial education and providing more support for people in debt.
While bankruptcy offers immediate relief from overwhelming debt, it should always be considered a last resort. With the right help and support, many people can find alternatives that don’t involve going bankrupt. If you’re struggling with debt, seek advice early from free financial counseling services. It’s important to understand all your options before making such a life-changing decision.
