Facing the tough decision of bankruptcy? Gain insights into the real impact on credit, assets, and emotions. Explore alternatives, debt repayment plans, and the potential impact on employment.
___________________________________________
“Hi, My husband and I are grappling with what to do next. Our business sadly went into liquidation a few months ago, as we saw a downturn of customers with the cost of living crisis. Made it through Covid, but didn’t have the reserves in the tank so we chose to stop throwing good money after bad.
We were both directors and three personal guarantees have since been called up on us: commercial lease (6yrs remaining @$65k p/a plus approx $20k lease opex p/a), $75k business loan with 3 yrs remaining, and $35k with a supplier (this last one it’s only me on the PG).
Personally, we maxxed out our debt to try and get the business going. We remortgaged the home to raise capital for the business. Our mortgage is now $760k (home valued at approx $840k). Close friends have a further $50k security over the house for money they lent to our business. So equity in our home is approx 3%. I have $16k credit card debt which I used to pay staff wages in the final weeks. We have a modest car each, with a loan reminding on hubbys, but no other assets or debt of note.
We both have permanent salaried jobs and earn approx $125k and $142k. We have a toddler and a second baby due mid 2024. At present, we can keep up with current expenses, but the PGs, impending maternity leave, and home loan coming of term in Jan’24 we’d be swamped. We have to something different!!
We are considering the following ideas:
move to Aussie and get higher paying jobs (have been trying to apply for jobs with no luck so far, but we have family there)
sell house, rent cheaper, and struggle through, hoping we can makes deals with creditors (two of three creditors are not engaging in negotiations so far)
go bankrupt and let the official assignee take over for 3yrs
All our ideas put us at the mercy of someone else, and we’re struggling with the feeling of limbo and not having a clear plan we can control
Has anyone else got advice on what it’s really like to go bankrupt??? We started out this process wanting to avoid it for reputation and employability reasons, but the beauty is that we can pull the pin now and start the 3yr clock ticking… I’ve read the Act and received legal advice etc, but there’s a lot of grey areas
Combined we have $165k in KiwiSaver to restart in future (eg get back into housing market). We don’t want to touch this now however so it stays protected from any bankruptcy”
(Original question on Reddit)
___________________________________________
I’m really sorry to hear about the challenging situation you and your husband are facing. Bankruptcy is a significant decision and can indeed feel overwhelming and uncertain. Here are some insights into what it’s like to go bankrupt and some considerations to help you navigate your options:
What it’s Really Like Going Bankrupt:
Impact on Credit Score: Bankruptcy significantly impacts your credit score, affecting your ability to secure loans or credit in the future. It might take several years to rebuild your credit.
Assets and Income: Depending on the type of bankruptcy, you may have to give up certain assets, and a portion of your income might be used to pay off debts under a court-approved plan.
Legal Proceedings: There might be legal proceedings, assessments of your financial situation, and potentially the sale of assets to repay creditors.
Emotional and Psychological Impact: Bankruptcy can be emotionally taxing. It’s a tough decision, impacting your self-esteem and outlook. However, for some, it’s also a fresh start.
Considerations for Your Situation:
Bankruptcy Alternatives: Explore all options before filing for bankruptcy. Negotiating with creditors or seeking financial counseling might offer alternatives.
Debt Repayment Plans: Creating a structured repayment plan, perhaps consolidating debts or negotiating payment terms, might be an option to consider.
Impact on Employment: Bankruptcy might affect certain job prospects, especially in financial or executive roles. However, laws vary, and some roles might not be impacted.
Seek Professional Advice: Consulting financial advisors, bankruptcy lawyers, or debt counselors will provide clarity on your specific situation, including the legal, financial, and personal implications of bankruptcy.
Your Assets and Future Plans:
Protecting your KiwiSaver for your future is wise. You might want to strategise to safeguard this for your retirement or re-entry into the housing market post-bankruptcy.
Moving Forward:
Given the impending maternity leave and financial commitments, a clearer plan is essential. Evaluating the pros and cons of each option against your long-term goals is crucial.
Conclusion:
The decision to go bankrupt is significant and complex. Your circumstances are unique, and seeking professional advice tailored to your situation is crucial. You and your husband must consider both the immediate financial relief and the long-term consequences of bankruptcy.
While it might feel like being at the mercy of others, gaining clarity through professional guidance can help empower you in making a decision that aligns with your goals and values.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
