Having spent years in the mysterious world of bankrupt in Melbourne I have produced a list to reasons people wind up declare bankruptcy and finish up broke. This is by no means an exhaustive list, there are as many ways to end up bankrupt it seems as there are hot dinners, however for the sake of everyone’s peace of mind I have kept this list to a simple Top 10.
You will notice that there is a theme in all of these and it focuses on change. It’s generally change that destroys us financially, anyway lets get to it; By the way the first 5 are applicable to everyone and the entire list is relevant for the business owners.
So how do increase my chances or going bankrupt I hear you ask try this list on for size.
Get Divorced. This shouldn’t come as too much of a surprise to anyone, household finances are generally worked out on 2 incomes, when that changes assets need to be sold and loans that were obtained based on two incomes suddenly become just one parties responsibility and before you know it someone winds up bankrupt. Start a Business. You have heard that most small businesses fail in the first 6 months regrettably this holds true, generally that failure is accompanied by debt far beyond what an individual can re-pay in a reasonable period. Get Sick. Typically when you apply for a loan for that new vehicle you are basing your ability to repay the loan on everything working out and that includes your health. One day you wake up with a devastating illness your capacity to work and repay the loan is destroyed over night. Lose your Job. Unemployed or underemployment is a major reason for bankruptcy. It doesn’t take long for the bills to start piling when there is no income coming in. Legal Action. If someone decides to take you to court for any reason and you end up with a bill from both your lawyers and from losing the case it doesn’t take long before you can be out of pocket a substantial amount of money. Trusting your Accountant. This one applies to business owners really, everyday I hear someone curse their accountant for not doing their BAS. Its either the taxes haven’t been done for years or they have been done but now we have a huge tax bill. Either way you as the business owner end up with a ATO bill bigger than Ben Hur and no way to repay it in the time the ATO require. Signing a Commercial Lease. Another one for the business owner. Generally a small business needs an area to work from whether in retail or whatever, so sadly in this country when you sign your name on a lease you (not your company or trust) are personally liable for the rent for the entire period of the lease. Typically these are 3 to 5 year deals and you are trapped. Partnership Breakdown. Going into business with a friend instead of your horrible boss doing something your excited about sounds perfect doesn’t it? Business is tough enough without having an partnership dynamic to contend with, it doesn’t take long before the rot can set in. Because you are good friends with someone it doesn’t automatically imply that you would be good business partners. Adverse Market Conditions. I had a client who ran a successful fireplace business he had a retail store and 8 truck on the road installing them, until one day the local council decided that open fireplaces are no longer legal as they are a bush fire hazard. Any tick of the clock things can change in the market and your business can evaporate over night. Using your Credit Cards to help your business. Once you find yourself consistently putting business bills on your credit cards or re-mortgaging the house to keep the business ticking it could be the beginning of the end. You never seem to catch it back up.
I realize that this is a fairly negative list of possibilities, hopefully you can take something away from it that will save you pain and potential bankruptcy. In my experience no one ever signs a loan or starts a business with the intention to go bankrupt and losing it all, however it does happen to about 25,000 people a year in Melbourne. If you are trapped in debt and feel like you have no options get some advice from an Insolvency Specialist, you will be surprised on what options you do have. Bankruptcy is not the end of the road its the beginning of a new debt free road.