If you put your head in the sand—you will pay!
We are seeing more and more instances where people are made bankrupt for a small credit card debt—when there is sufficient equity in real property to more than satisfy the debt.
These unfortunate circumstances whereby the debtor has only themselves to blame and the whole process costs them significantly.
The circumstances are often the same and proceeds as follows:
The value of the debt is insignificant (usually less than $10,000).
The debtor does not pay the debt.
The creditor issues a bankruptcy notice that expires.
A bankruptcy trustee is appointed.
As bankruptcy trustees we firstly conduct our investigations to determine what assets are available for the estate and quickly determine that it is the bankrupt's own real property. We immediately secure the property with a caveat to ensure the bankrupt cannot deal with the property. At the same time, we contact the bankrupt to discuss the position with them. These discussions reveal there are negligible other creditors and that there appears to be more than enough equity in the property to satisfy the outstanding debt.
We outline to the bankrupt the two options available going forward:
1. They source sufficient funds to pay all debts and costs of the bankrupt estate.
2. We sell the property, pay out the creditors and the costs of the estate and pay any surplus back to the bankrupt.
Of course the bankrupt does not want to proceed with option two and therefore do what they can to proceed with option one. However, it is not simply the case that they pay the value of the outstanding creditor claim; other significant costs are now due. These include:
Petitioning creditors costs for the sequestration order
Legal fees in securing the property
Trustee's remuneration and outlays
Asset Realisation Charge (7% of all recoveries is payable to AFSA)
These costs can add up very quickly. In fact, often the total payment required to annul the bankruptcy is two to three times more than the original debt, and is a significant amount of money. At this point bankrupts become very upset and angry at us stating they cannot fathom how the debt has increased so much. While we appreciate their frustration, there is absolutely nothing we can do about it and it is simply the case that if they cannot find the funds themselves, we must sell the property. In doing so, further costs are incurred through agent's commissions and increased trustee's remuneration for the work required to facilitate the sale.