Things that people do to complicate their lives.
After more than 25 years in the industry I am rarely surprised at some people’s financial positions, but I am constantly amazed at what some do to over-complicate their financial lives. In many cases, you would expect people to know better.
Here are just three recent examples that definitely did not assist their financial lives.
Case one: “I will gamble my way out of trouble”
This debtor was preparing to sign a section 188 authority under Part X of the Bankruptcy Act 1966 so that his creditors could consider a proposal for a Personal Insolvency Agreement (PIA). When completing the forms (before signing), he could honestly declare less than $100 in his bank account.
He was then made redundant (before signing the forms) and received a $40,000 payout. Shortly after, as is common when companies make key employees redundant, he was contractually re-engaged on the same terms, meaning he still had the income to proceed with the PIA. His debts were just over $60,000.
Instead of using the redundancy money to pay down creditors, he decided to enter into the well known wealth creation activity called gambling, and lost it. When he actually signed his section 188 authority a few weeks later, he could again honestly declare that he had less than $100 in the bank.
Now he has to go through the whole Part X process over five years. He probably could have avoided this if he had paid down most of his creditors and negotiated with the others.
Case Two: “The bankruptcy trustee will never find out”
A bankrupt owns a property with a mortgage (almost the value of the house); and three caveats (where the debts total close to the value of house)—i.e. there is no equity in the property. While bankrupt, he became a beneficiary in a deceased estate, but neglected to advise us about this after-acquired property.
He used the substantial payout from the deceased estate to satisfy the mortgagee (to keep the house) again without advising his trustee. The mortgagee notified us that the mortgage had been paid out, which prompted us to investigate. The bankrupt then told us about the deceased estate, and probably realising that he was now in trouble, told us nothing more.
We now have a house that vests in us, with half the original debt (the caveats) on it and possibly enough equity to allow us to sell it. The bankrupt’s failure to disclose the asset is an offence and will be reported to the Australian Financial Security Authority (AFSA), along with an objection to discharge, and he will lose the house.
Case Three: “How many credit cards can I accumulate?”
Worrells currently manage over 400 Part X estates (personal insolvency agreements). Most of these are what we call “consumer insolvencies” as they were not caused by a business failure, but by accumulating too much debt.
As an exercise for this article I analysed the last 50 files and listed how many credit cards and personal loans appeared in the creditor’s details. On average, each debtor had four credit cards with around $55,000 owed, and two personal loans (or similar) with about $38,000 in debt. The top three debtors had 12, 11 and 9 credit cards each with the largest debt of $164,000, and one debtor had 8 other loans and two debtors each had 6 loans, with the largest accumulated debt of $108,000.
It is evident that what had caused the majority of these financial failures were simply people accumulating debt by trying to prop-up a lifestyle they cannot afford. They were not living within their means and eventually something happened that meant they could not maintain the payment required to keep the lenders happy.