Guide to Bankruptcy and Useful Resources

Bankruptcy is a legal process whereby the debtors give up their assets and control of their finances in exchange for protection from legal action by their creditors and has important ramifications for both creditors and debtors. There are strict rules when it comes to declaring yourself bankrupt and a bankruptcy case may only be heard by the Federal Court or the Federal Magistrates Court.

Generally, a bankruptcy lasts a minimum of three years if you consistently meet your obligations, although there are cases when this period may be extended to eight years.

There are two ways in which a person or business may be made bankrupt and these are: voluntary, by completing and filing the necessary paperwork; or involuntary, by order of a court usually at the instigation of a creditor who is owed $2000 or more.

Is bankruptcy the right option?

As a debtor, you can only consider filing for bankruptcy when you’ve exhausted all other means or options first. When you file for bankruptcy, all your details get recorded on a government database known as the National Personal Insolvency Index or NPII. Creditors will always consult the NPII first before lending anyone money or approving credit card applications.

How does the court declare someone bankrupt?

Anyone who claims that you owe them money can go to a Federal Court or Federal Magistrates Court to declare you bankrupt. This application is often called a Creditor’s Petition and a copy will be handed to you. This copy will include the date and time for you to attend court so you can prove that you have committed an act of bankruptcy. An example is when you have failed to follow the instructions in a bankruptcy notice issued by the Insolvency and Trustee Service Australia (ITSA). When this happens, your main instruction is that you pay the amount of a judgment debt within the time specified in the notice.

Other things the Court will take into consideration:

  • You owe the person money
  • The amount specified in the bankruptcy notice is correct
  • You are able to pay your debts.

If you disagree to being made bankrupt, you will need to file the necessary paperwork and submit them to the Court at least three days before the hearing.

How do you declare bankruptcy?

You will only need a debtor’s petition, statement of affairs, and acknowledgement that you have received and read over the ‘prescribed information’. These must be lodged with a registered trustee or directly with the ITSA. Although free, registered trustees are entitled to remuneration. The fees can be taken out of the proceeds of a property sale as long as there is consent from the creditors.

What are the consequences of bankruptcy?

Once you are bankrupt, your unsecured creditors will stop contacting you. This includes any legal action taken against you in relation to your debts. But this will only happen if you list all of your unsecured creditors in your statement of affairs. Unsecured debtors will not be able to continue debt recovery actions against you, but secured creditors may be able to seize your property if you don’t meet your loan payments. But you are still liable for the following:

  • HECS payments
  • Court fines/penalties
  • Child support
  • Council and water rates
  • Unliquidated damages from accidents e.g. car accidents may be an exemption
  • Student assistance/supplement loans and HELP debts

What happens to your assets?

You assets can be retained because they are protected property and some of them can even be recovered by your trustee and sold. What you may keep, however, are:

  • Most of your ordinary household or personal items
  • Tools of trade used to earn an income up to a set limit
  • Vehicles (e.g. cars or motorbikes) up to a set limit
  • Most funds in a complying superannuation fund
  • Life insurance policies
  • Compensation for a personal injury
  • Centrelink payments are also protected

Some of the assets which your trustee can recover include:

  • Houses; apartments; land; business and any other real property
  • Motor vehicles which are not exempt
  • Shares and other investments
  • Any tax refund for income earned before you became a bankrupt
  • Proceeds from a deceased estate where the person died before or during your bankruptcy
  • Lottery winnings

What are your rights and responsibilities once bankrupt?

You can never borrow money or purchase anything on credit. This is an offence unless you inform the people you are dealing with that you are an undischarged bankrupt.

You can still operate a business while bankrupt, but you will always have to disclose your bankrupt status. You can also not be the director of the company or involved in management without the permission of the Court.

You are required to notify your trustee of all the changes you have made to your name or address. You will also need to obtain a written approval of the trustee if you are going to travel overseas.

Will bankruptcy affect your credit report?

According to ITSA, when you become a bankrupt your name will be on the public record (NPII) forever. Your name will be on a commercial credit reference for 7 years even if your bankruptcy has been discharged. Lenders may limit your ability to borrow money or buy things on credit. You may also find it hard to rent a property, or get any utilities connected without paying a bond and some banks will not let you operate an account or will restrict how you can use your account. If you have any queries regarding your credit report you should contact Veda Advantage.

Other possibilities to declaring bankruptcy

  • Informal agreement. You may be able to reach an agreement with your creditors to repay your debts over a feasible time period if you have an income. This can be private and documented, but not necessarily legally binding.
  • Formal agreement. This is legally binding for you and your creditors. You will need a reliable source of income or assets to exchange with your creditors so that they will write off your debt.

Sources:

 

Guide to Payday Loans and Useful Resources

One of the best possible solutions when you are in need of instant cash is a payday loan. This is also the best way to bridge the gap between when you got paid and when you will be receiving your next pay. Instead of being hassled of filling out application forms and passing the standard requirements of a certain loan, the payday loan is the best alternative to meet your immediate financial needs.

What is a payday loan?

A payday loan is a type of loan that you get from lenders that aren’t usually banks. It’s called a payday loan because you will borrow just enough money to get you through to your next payday upon which the money is due. Payday loans are offered by a number of businesses under a wide variety of titles and they generally charge a high interest fee for the loan. This type of loan is sometimes referred to as a cash advance. (http://moneyfor20s.about.com/od/typesofdebt/g/payday_loan.htm)

Because the market for payday loans is becoming more defined, the regulatory authorities and the larger financial organizations are beginning to take a much closer interest. Most fringe lending is now covered by the Uniform Consumer Credit Code (UCCC); but, in the past this industry was not very highly regulated, and some lenders still continue to use loopholes to avoid the UCCC. New South Wales and Queensland have imposed a 48%-APR maximum loan rate, including fees and brokerage

How does it work?

A payday loan works when a lender provides a short-term unsecured loan to be repaid at your next payday. Usually these lenders require proof of income and employment, but there are some companies and franchises that have their own underwriting criteria.

In a traditional sense, the borrower visits a payday loan business and secures a small cash loan. This cash loan is due on the borrower’s next paycheck. The borrower will write a postdated check to the lender in full amount of the loan plus fees. On the maturity date, the borrower is expected to return to the store and repay the loan in person. If the borrower does not pay in person, the lender may redeem the check. If the account is short on funds to cover the check, the borrower will be charged additional fees or an increased interest rate as a result of the failure to pay.

An online payday loan, on the other hand, is easier to accomplish. Borrowers will only need to complete the loan application online or via fax and the loan is then transferred by direct deposit to the borrower’s account upon approval. The loan repayment can then be electronically withdrawn on the borrower’s next payday. Usually online payday loan businesses do not verify income.

Advantages of payday loans

A payday loan has many advantages. While there are risks involved, just like any other type of loan, these risks can be avoided. You only need to be responsible with this type of debt. According to North Orion (http://www.northorion.com/payday-loan-advantages-0639/), the advantages of payday loans include:

  • Easy Application. Payday loan applications are short and easy. Lenders will only need to verify your identity and have you fill out a form as part of the application. There is usually no credit check involved. The application requirements are straightforward and will include information such as proof of age, proof of income, and photo identification. In most cases, you will only need to fill out the forms, submit the required documents, and your approval will follow shortly thereafter.
  • Fast Approval. Payday loans are appealing to many simply because they operate differently than regular banks. This type of loan will give you money when you need it especially when you do not have the time to wait. Once application is completed, you will be informed promptly as to whether you have been accepted for a loan.
  • Maintains Credit Rating. Payday loans will let you get an advance even if you have poor credit and you are unable to get personal loans elsewhere. Lenders do not need to look at your credit history to determine your eligibility and payday loans will not show up on your credit history if you pay on time. If you have the funds necessary to repay the loan then your credit score will not be affected negatively.
  • Unsecured Loans. There is no need for collateral when applying for payday loans. You will be taking on unsecured debt and entering into an agreement with the lender that you will pay them back on a date agreed upon. You won’t need to produce any other document or items of great value.
  • Short Payment Terms. Payday loans need to be paid as soon as you are able. This is not a bad thing because it means you won’t be worrying about paying the loan off for long. The terms for this type of loan usually range from a week to a month although you can extend the period for an additional fee.

Disadvantages of Payday Loans

While payday loans have a good number of advantages, it does have some risks. According to Payday Loan Finder (http://www.paydayloanfinder.org/disadvantages-of-payday-loans/), the disadvantages of payday loans are:

  • High Interest Rates. Payday loans charge high interest rates. In some cases, it may run between 300 and 900 percent on a short-term loan. This is obviously much higher than any credit card company is allowed to charge. This can also be a hindrance for you to get out of a payday loan. If you are unable to pay the loan on time, you may find that the interest rate climb even higher.
  • Little Regulation. There aren’t a lot of regulations about payday loans. There are, however, current efforts to change this and to make strong regulations of the payday loan industry.
  • According to badcreditpersonalloans.com.au, many borrowers remain ignorant about payday loans and would do well to research the true costs before taking one out.

Short-Term Solution for Long-Term Problems. One of the problems of a payday loan is that you may have a hard time getting out of the cycle. Instead of being able to budget your money for more important things, you will have to also have to pay off the debt regularly until you have settled it. When this happens, you may be tempted to take out a payday loan again and again because your available funds have been depleted by the interest rates and fees.

Guide to Business Loans and Useful Resources

For any businessman or entrepreneur, putting up a business is a very difficult process often involving a lot of planning for resources such as funds, market and advertisements. It is for this reason that raising money has become one of the most difficult issues faced by any type of business. Not many can shell out enormous amounts of cash in no time. Sometimes, businessmen and entrepreneurs would need to tap their own savings if they are unable to find other sources. Some of the most useful sources that can help businesses raise money are financial institutions such as banks, government organisations and venture capitalists.

These institutions have provided funds to businesses that have the potential to earn large profits. They provide funds either through leases or business loans.

What are business loans?

Basically, a business loan is a way of borrowing money from a financial institution wherein the rate of interest is charged upon repayment and this will often depend on the length of repayment. This type of loan works well for enterprising business people who have just started a new business and for people who are in need of additional resources for certain projects. A business loan is a way to address the needs of both new and existing businesses. To add, one can choose business loans from a wide range of options which differs on the rate of interest and preferred repayment needs.

How to qualify for a business loan

Application for a business loan will require neat and proper documentation, data that justifies the need for the loan and the comfortable loan repayment, a thorough business plan and contingency plan created in a manner that is easily understood, and a good personal or company credit report. Disorganized application paperwork with missing information can only delay the processing period. This can also remove the attention of the loan officer from your plan.

How do you apply for a business loan?

Business loans are offered both in short-term and long-term depending on the needs of the business. A short-term business loan is good for funding short-term projects while a long-term business loan can help when acquiring assets or expansion.

Applying for a business loan can be very difficult, even more so than applying for a personal loan or a home loan because of a longer and more tedious process. A business loan will need a stricter evaluation of the requirements based on higher standards. It takes longer to apply for one than the loans mentioned above. Also, financial institutions differ in terms of loan packages as well as their terms and conditions. You will need to check out which bank you think has the best offer. It is best to investigate the business loans being offered by the banks in your community.

Business loan repayment date

The repayment schedule of your business loan will rely on for what the loan is being used. If the loan will be used for purchasing land or equipment then the repayment schedule can be based on the borrower’s needs balanced with the lender’s needs. However, if the business loan is unsecured, then the repayment schedule will be shorter and less flexible due to the higher inherent risk.

Will the bank check your credit rating?

During the application process, it’s common to find banks and other financial institutions to become very interested in your credit rating because this will help them decide how much money they can lend and the interest you will have to pay on the loan you will get. Your credit rating will also serve as an indication if your loan would be a high risk loan.

If you have an established business, your bank can offer you additional cash flows to give you funds to make purchases, to make essential payments for rent, payroll, and other expenses. If you are starting up a new business, your bank can offer you a loan to spend for your capital.

Business loan options

According to business.gov.au (http://www.business.gov.au), there are alternate sources of funding for businesses.

  • Overdraft facility. An overdraft facility can be attached to your business account with an agreed overdraft limit. Security is usually required together with a credit assessment of the business viability. The overdraft facility can be secured or unsecured and its purpose is to provide a working capital for the business before any income is received. However, it should never be used for capital purchases or long-term financing needs. The fees of the overdraft will depend greatly on the credit limit.
  • A line of credit. A line of credit or equity loan can provide access to funds by allowing the borrower to draw on an account balance up to an approved limit. Funds can be drawn at any time for as long as the balance does not exceed the approved limit. This type of loan is usually secured by a registered mortgage over a property and you will be required to make payments to at least cover the loan’s interest and fees. The main advantage is that it’s flexible enough to be drawn as the need arises just like an overdraft. It can be used to access funds for working capital requirements and it is usually secured against property. However, the property can be put at risk if you fail to make your payments.
  • Fully drawn advance. A fully drawn advance is a term loan with a scheduled principal and interest repayment program that provides access to funds upfront and is used for funding long term investments such as a new business or equipment that expands the capacity of the business. It is not the same as a short term loan that you would use to help with cash flow and fund the day to day running of the business. A full drawn advance is usually secured by a registered mortgage over a residential or commercial property or business asset. Its main advantage lies in its interest rate being flexible enough to be fixed for a period thus providing certainty and stability for repayments.

For a comparison of business loans in Australia, visit this website: http://www.infochoice.com.au/small-business/banking-loan/business-loans.aspx

Guide to Superannuation and Useful Resources

Superannuation or Super is a retirement program wherein money comes from your contributions based on a proportion of your salaries and wages into a super fund. It can be considered as a lifetime investment. The contributions made all add up while you are working and additional money can be added through co-contributions from the government. Your super fund also invests money in other things such as shares, property and managed funds.

Types of Super Funds

There are currently around 500,000 super funds in Australia. The main types of super funds are:

  • Industry funds. These are run by employer associations and/or unions.
  • Wholesale master trusts. These are run by financial institutions for groups of employees and are also classified as retails funds by APRA.
  • Retail master trusts/wrap platforms. These are run by financial institutions for individuals.
  • Employer stand-alone funds. There are established by employers for their employees with a trust structure not necessarily shared by other employers.
  • Self managed superannuation funds (SMSFs or Do-It-Yourself Funds). These are established for a small number of individuals and regulated by the Australian Taxation Office.
  • Small APRA Funds. These are not similar to SMSFs in such that the Trustee is an Approved Trustee, and the funds are regulated by APRA.
  • Public sector employees’ funds. These are established by governments for their employees.

Super Guarantee

Your employer is lawfully required to pay a percentage (9%) of your salary. This is called a Super Guarantee. This super guarantee ensures that the minimum contribution is 9% of your ordinary time earnings, up to the ‘maximum contribution base’. This means it is not payable on overtime rates, but it is payable on remunerations, such as bonuses, commissions, shift loadings and casual loadings. The super guarantee also entitles you to choose the super fund of your choice.

Normally your employer chooses a default fund where your super is paid into. This chosen super fund is often nominated under an industrial award. But you can choose the super fund you want by filing in a standard choice form from the Australian Taxation Office or from your employer. The choice of superannuation funds allows you to:

  • change funds when your current fund is not available with a new employer;
  • consolidate superannuation accounts to cut costs and paperwork;
  • change to a lower-fee and/or better service superannuation fund;
  • change to a better performing superannuation fund.

Here are some of the links where you get to choose the super fund that you like:

Super Benefits

  • Preserved benefits. These benefits can only be accessed once you reach the age of 55, also called ‘preservation age’. All contributions made after 1 July 1999 fall into this category.
  • Restricted non-preserved benefits. This can only be accessed when you meet a condition of release, such as termination of employment in an employer superannuation scheme.
  • Unrestricted non-preserved benefits. These can be accessed upon your request as long as you satisfy a condition of release.

Preservation Age

Preservation age is when you are allowed access to your super benefits. Once you have reached this age, you will have access to your super benefits without having to retire from your current job. Furthermore, once you have reached your preservation age, you may even reduce your working hours without reducing your income. This is under the transition to retirement rules. According to the Australian Taxation Office, this can be done by “topping up your part-time income with a regular ‘income stream’ from your super savings.” You can now take out some or your entire super fund over into a retirement income stream. This will allow you to increase your reduced income by drawing on your own super fund.

Before 1 July 1960 = 55 years of age

1 July 1960 – 30 June 1961 = 56 years of age

1 July 1961 – 30 June 1962 = 57 years of age

1 July 1962 – 30 June 1963 = 58 years of age

1 July 1963 – 30 June 1964 = 59 years of age

After 30 June 1964 = 60 years of age

For more information, you can check this link: http://www.ato.gov.au/individuals/content.aspx?doc=/content/74219.htm&pc=001/002/064/007/002&mnu=0&mfp=&st=&cy=

Superannuation Calculators

Super calculators are designed to use the data you will provide to estimate the information related to your retirement savings. Super calculators use various formulas to reach a right amount. You only need to enter the right values that are needed by the calculator. These include theemployer’s fees, contribution rate, contribution related to taxes, and gross salary. All these are then summarized by the calculator and it estimates the missing data through complex formulas.

Many websites have their own super calculator. You can check these websites on the internet. You can also go to these sites:

Sources:

Guide to Home Loans and Useful Resources

A home loan is a loan that uses your real estate or property as collateral for a loan that you might need. It is a general term used to describe many types of loan products for a variety of purchasing, refinancing or drawing down against residential real estate. This term is now used to cover all types of residentially secured loans.

  • First mortgage

This is the most basic and most sought after form of home loan for people. This is when you are putting the property you want to buy as collateral and your financing firm will cover the cost of the house. You will, however, have to repay them or else the house will be foreclosed. This is the most flexible and most endearing type of loan because it’s flexible in terms of payment schemes and has big discounts.

  • Second Mortgage

This type of loan comes with a higher interest rate. If you are unable to make your payments regularly to your first and second mortgage, your second mortgage won’t be able to take claim of the property.

  • Refinance loan

This loan pays your original loan. This buys you nothing but time because it pays for the loan that you have.

  • Home equity loan

This withdraws equity from your loan and can also finance different things such as cars. These are the fastest ones to get and are appealing because of its financing aspect.

Advantages and disadvantages of a home loan

Home loans can be very useful for people who would like to make a large purchase or in need of a big amount of money for various reasons. People with houses can use the equity involved in it towards financing a home loan, which can be quite easy to get and the application procedure as fast as well.

  • Low Interest Rate. Home loans have low interest rates with the exact percentage a matter of contract, the financial institution, the value of the house, and the applicant’s credit score. Furthermore, the total installments of a home loan of the current year are directly deducted from the borrower’s annual income when the total income tax is calculated. This means that the amount paid towards the home loan are counted in for rebate in income tax calculation.
  • Cash Usage. With a home loan, the borrower is not required to borrow an amount of money equal to their property’s value. Instead, they may take out an amount that they really need against the home loan. This money can then be used for a variety of purposes and for whatever reason. Home loans are not aimed to a single purpose or transaction, thus it can be used for almost everything since there are no restrictions.
  • Easily Approved. Home loans are quite easily approved since the application procedure is among the easiest of loan varieties. Since the borrower is getting a loan against a value they already possess, they can easily get the money as the financial institution is guaranteed they will be paid.
  • Flexible Repayment Methods. A home loan’s repayment method is flexible thereby making it extremely advantageous. Borrowers may put in the loan contract how they plan to repay the loan, be it in monthly installments, semi-annually or quarterly. This repayment plan is decided upon by the borrower and should be decided before signing the contract.

According to The Loan Bazaar (http://www.theloanbazaar.com/homeequityloans/advantages-disadvantages-home-equity-loans.html), some of the other benefits of a home loan include:

  • It provides you with the facility to set a particular date to make the refund of the loan and the conditions for the usage of the money are also very lenient.
  • Now the borrowers don’t have to wait for so long and for the old fashioned time consuming home equity loan procedures as now the functions and the dealings has become online with the help of the internet. Adding to this it also saves the borrower’s time and the borrower gets the approval without much delay.

Meanwhile, the disadvantages include:

  • The main disadvantage of the home equity loan is that if the loan is not refunded on time the borrower has to abandon his/her house. Your house is kept as security with the loan provider and failing to refund the loan can lead to the procedure of foreclosure and that too within a maximum period of ninety days.
  • The rates of interest are dynamic in nature and are bound to change with the alterations in any financial system. That can lead to a situation where the payments on a monthly basis can vary. The cap is the deciding factor no matter how much the rate of interest might increase yearly. Similarly it also decides that how much it is going to rise throughout the tenure of the loan.
  • It is up to the loan provider to ask for the different amounts whether it is for the filling for an application or might be for the withdrawal procedure.

Bad Credit Home Loans

  • These types of loans are for people with identified higher levels of risk. Examples include people with a defaults recorded against them or unpaid fines. Individuals that have entered into a debt agreement or are bankrupt (or ex bankrupt) fall into this category.
  • Lenders typically charge an additional 1-3% more than a normal loan.
  • Banks normally don’t directly lend to people with bad credit. However many banks fund third party lenders which will then lend to people with credit problems.
  • Lenders typically want to refinance home loans rather than write a new one as the risk is normally lower (as they will have equity in their property and have a payment history as well)

Source: http://www.badcredithomeloans.com.au/

 

 

Home loans are among the most popular type of loans because it makes use of the most accessible asset that anyone has. But it has its risks. You run the risk of losing your house if you are unable to make good with your payments. There are cases when people opt to lose their houses because of their inability to keep up with the payments. Home loan creditors often turn to predators once you miss a payment on your contract. That is why it’s very important that you choose the type of loan that will suit your needs and you can easily pay back before signing the loan contract.

You need to be transparent about your income and your needs to your creditors. You also need to make sure that the firm understands you and is flexible to your payment arrangements.

Be transparent about your income and your needs to your creditors. Make sure you find the firm that is the most understanding and the most flexible when it comes to payment arrangements. There may not be a lot of other routes for secured loans such but they can be fairly cooperative with their clients.

 

 

Guide to Debt Agreement and Useful Resources

Debt agreement is an arrangement between you and creditors, a low-cost alternative to bankruptcy for people with few or no assets. Debt agreement is available to debtors with under $94,530.80 of personal debt and a net income that is below $70,898.10. A debt agreement is also known as a debt settlement and is basically a legally binding agreement which could result in a payment of less than the full amount of all your debts; a moratorium on payment of your debts; a transfer of property from you to one or more of your creditors in full or part payment; and/or payment of amounts out of your income to your creditors, either collectively or individually.

Debt agreements are best negotiated by people such as debt counselors, debt agreement administrators, and private trustees. It is lodged with the Insolvency and Trustee Service Australia (ITSA). They will contact your creditors to see if they will agree to your proposal.

A debt agreement is not similar to debt consolidation where you simply transfer balances from high interest charging accounts to one low interest charging account. In debt agreement, provable unsecured debts are frozen upon acceptance of your debt agreement proposal by creditors. This allows you to pay back the debts at an amount you can afford over an extended period of time.

Eligibility

According to ITSA , people who fall under the following are eligible for a debt agreement:

  • Have not been bankrupt, utilised a debt agreement or given an authority under Part X of the Bankruptcy Act in the last 10 years;
  • Have after Tax Income of less than $52,907 p.a.
  • Have unsecured debts of less than $70,543;
  • Are insolvent.

Benefits of debt agreements

Debt agreement is a good alternative to bankruptcy and has many benefits, such as:

  • The interest accruing on your debt is frozen;
  • Creditors will no longer pursue you;
  • You debt agreement administrator will handle all communication with your creditors;
  • Your credit report is less affected by bankruptcy;
  • And you will only pay a single regular repayment instead of handling multiple repayments.

Will a debt agreement affect your credit report?

According to ITSA), Credit-reporting agencies Veda Advantage and Dunn and Bradstreet make use of the information on the National Personal Insolvency Index or NPII to advise any creditors that you are under a debt agreement. Your debt agreement will be listed on your credit report for seven years during which you will have difficulty obtaining additional credit.

Alternatives to debt agreements

Debt consolidation is a loan that replaces multiple loans, such as credit card debt, personal loan debt, and other unsecured debts, with a single personal loan that is usually at a reduced rate of interest. Basically it entails taking out one loan to pay off many others. This is done to secure a lower interest rate, secure a fixed interest rate, and the convenience of paying off only one loan.

Debt consolidation is often a type of unsecured loan used to pay off other unsecured loans. BUt it often involves a secured loan against an asset that serves as collateral. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

Benefits of Debt Consolidation

  • One payment. Debt consolidation is a replacement of multiple loans and debts. This means the borrower will only need to make one payment instead of making numerous payments each month.
  • Affordability. In debt consolidation, the borrower will only end up with a lower monthly repayment and a longer repayment period. This is an effective way of managing finances for some people.
  • Lower interest rates. Debt consolidation normally consolidates existing debts at a lower interest rate thereby allowing the borrower to save money.
  • Help eliminate creditor pressure. It can be very difficult to manage one’s finances when there are a lot of repayments needed for multiple debts. This may lead to creditors or lenders to contact you to arrange the payment. Debt consolidation will help the borrower eliminate creditor pressure since the borrower will only need to deal with one lender.
  • Credit rating protection. Debt consolidation may help the borrower in making monthly payments and managing financial affairs more effectively.

Bankruptcy is a legal process whereby the debtors give up their assets and control of their finances in exchange for protection from legal action by their creditors and has important ramifications for both creditors and debtors. There are strict rules when it comes to declaring yourself bankrupt and a bankruptcy case may only be heard by the Federal Court or the Federal Magistrates Court.

Generally, a bankruptcy lasts a minimum of three years if you consistently meet your obligations, although there are cases when this period may be extended to eight years.

There are two ways in which a person or business may be made bankrupt and these are: voluntary, by completing and filing the necessary paperwork; or involuntary, by order of a court usually at the instigation of a creditor who is owed $2000 or more.

What are the consequences of bankruptcy?

Once you are bankrupt, your unsecured creditors will stop contacting you. This includes any legal action taken against you in relation to your debts. But this will only happen if you list all of your unsecured creditors in your statement of affairs. Unsecured debtors will not be able to continue debt recovery actions against you, but secured creditors may be able to seize your property if you don’t meet your loan payments. But you are still liable for the following:

  • HECS payments
  • Court fines/penalties
  • Child support
  • Council and water rates
  • Unliquidated damages from accidents e.g. car accidents may be an exemption

Student assistance/supplement loans and HELP debts

Source(s)

 

Guide to Debt Consolidation and Useful Resources

Debt consolidation is a loan that replaces multiple loans, such as credit card debt, personal loan debt, and other unsecured debts, with a single personal loan that is usually at a reduced rate of interest. Basically it entails taking out one loan to pay off many others. This is done to secure a lower interest rate, secure a fixed interest rate, and the convenience of paying off only one loan.

Debt consolidation is often a type of unsecured loan used to pay off other unsecured loans. BUt it often involves a secured loan against an asset that serves as collateral. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

When applying for a debt consolidation loan, you need to be informed properly. You need to make sure:

  • You understand fully what you are doing before applying for a debt consolidation loan.
  • The solution will be of real benefit to you and not just a short term fix.
  • You have control over your debts.
  • Your repayments will be reduced by the debt consolidation loan and not increased.
  • You know full well the consequences of the steps you are taking.
  • There are no hidden costs within the debt consolidation loan.
  • You are better off as a result of the solution you have chosen.

Benefits of Debt Consolidation

There are several benefits of debt consolidation

  • One payment. Debt consolidation is a replacement of multiple loans and debts. This means the borrower will only need to make one payment instead of making numerous payments each month.
  • Affordability. In debt consolidation, the borrower will only end up with a lower monthly repayment and a longer repayment period. This is an effective way of managing finances for some people.
  • Lower interest rates. Debt consolidation normally consolidates existing debts at a lower interest rate thereby allowing the borrower to save money.
  • Help eliminate creditor pressure. It can be very difficult to manage one’s finances when there are a lot of repayments needed for multiple debts. This may lead to creditors or lenders to contact you to arrange the payment. Debt consolidation will help the borrower eliminate creditor pressure since the borrower will only need to deal with one lender.
  • Credit rating protection. Debt consolidation may help the borrower in making monthly payments and managing financial affairs more effectively.

Pros and Cons of Debt Consolidation

When debt is consolidated, you will take out a loan to pay off all others. This will allow you to consolidate the money you owe into one payment. Here are the pros and cons of debt consolidation according to http://businessmajors.about.com/od/studentfinances/a/DebtConsLoans.htm.

  • Pros

A debt consolidation loan could be helpful if you ran up your credit cards while you were in business school, or if you have a number of high interest installment loans (student loans, car loan, etc.) This will allow you to roll this high interest debt into one manageable payment.

If you have an easier time making your payments, you can avoid late fees, extra charges, and the bad credit that will inevitably result when you can’t afford to pay regular bills.

  • Cons

It can be difficult finding fair interest rates. If the rate on your new loan isn’t any better than the rate you pay on your current loans, consolidating your debt wouldn’t make much sense.

It can also take longer to pay debts off. When you consolidate debt, you still end up owing the same amount of money. The main difference is usually the length of the term. This could leave you paying more in interest if the term is really long.

Alternative to debt consolidation

There are alternatives to debt consolidation loans and these include the following:

  • Informal arrangements. This is an arrangement with some or all of your creditors to assist you in managing the repayment of your debt. Once you have informed the creditors, they may be able to provide assistance to help you in your financial position.
  • Debt agreements. This is a simple method for you to enter a legally binding agreement with your creditors. It provides protection that an informal arrangement does not.
  • Personal insolvency agreement. This allows you to propose a compromise with your creditors and it is another way for you to take control of your financial situation.

Mortgage refinancing. This is similar to debt consolidation. Refinancing your property may be an option if you’re having difficulty paying your existing mortgage. Mortgage refinancing allows you to put the repayments from all your debts into one convenient payment.

 

Additional resource. Find out about how to make your bad credit rating disappear, article courtesy of financecomparison.com.au

Guide to Personal Loans and Useful Resources

Personal loans are unsecured loans which people can use for a variety of purpose. Lenders such as financial institutions and even private individuals offer personal loans to people with good credit records and who have the capability to pay them back on a fixed scheme. Personal loans are very useful for consolidating debt, for people who have multiple outstanding accounts which are difficult to manage. This type of loan can be used to pay off debt and consolidate all debt into one monthly payment with a lower interest rate. This can be very useful in increasing credit rating.

Types of personal loans

There are two types of personal loans.

  • Secured personal loan. The secured personal loan is backed by collateral. Collateral may be a home, a vehicle, or another financial asset. If the borrower is unable to pay the amount borrowed, it will result in repossession of the property.
  • Unsecured personal loan. The unsecured personal loan requires nothing more than the signature of the borrower and it is usually based on creditworthiness of that individual. Since it is unsecured, the lender can resort to legal claims to make good on the loss.

The close-ended loan is a one-time loan with a fixed amount, rate and repayment schedule. This type of loan often has a repayment period of one to two years depending on the amount of money borrowed. The borrowers can even make additional payments to pay the loan off more quickly.  (http://www.wisegeek.com/what-are-personal-loans.htm)

According to personalloans.org, there are eight personal loans that you can get on a secured or unsecured basis. (http://www.personalloans.org/guide/types-of-personal-loans/)

Home Equity Personal Loan

If you have enough equity on your home, you might be able to get a personal loan secured by your home equity. Advantages of a home equity loan are:

  • The interest rates are lower because the money is secured by your home
  • You may be able to borrow a larger amount
  • The payback term will be longer
  • The payments may be lower
  • A major disadvantage of using your home’s equity as a personal loan, of course, is that if you cannot repay, you could lose your home to foreclosure.

Home Equity Line of Credit

If you have enough equity in your home and don’t want or need all the money at once, you might want to consider a personal line of credit secured by your home.

Major advantages of this approach are:

  • You only pay interest on the amount you borrow
  • You have control over how and when you use the money
  • The payments are interest only, so they’re usually lower
  • If you can’t repay the line of credit, you could lose your home to foreclosure.

Short Term Personal Loans

Short term personal loans have the following two characteristics:

  • High interest rate- This is because repayment period is so short.
  • Small loan amounts- Many online companies will only loan up to $1500 for a short term loan. Banks don’t offer more than $15,000 or $20,000. Collateral may also be requested.

Fast Cash Advance Loan

A cash advance or payday loan might be useful to take care of an unexpected expense. Characteristics of these loans are:

  • They’re easy to qualify for. Usually all you need are some paycheck stubs.
  • They have a short term life. You usually have to pay it back within two weeks.
  • The interest rates are very high. For example, you can pay up to $30 to borrow $100 at some payday loan firms.

Military Payday Loans

These loans are offered by military loan companies to assist qualified members of the armed forces in getting money when they need it. Some characteristics of these are:

  • It’s specific for men and women of the military
  • It has a low rate of interest
  • A repayment schedule can be chosen by the borrower
  • The money can be obtained even if the applicant has bad credit

No Credit Personal Loan

These loans have the following characteristics:

  • They’re designed specifically for people with no credit history
  • A credit check may not be required
  • The interest rates may be high
  • Make sure you read the fine print and comparison shop for these loans.

Second Chance Personal Loans

If you’ve run into an unforeseen financial crisis or a personal tragedy, you may be able to get a second chance personal loan:

  • This can be a secured or unsecured loan
  • Collateral (a home) will probably be involved
  • You will experience a higher rate of interest, shorter payback times and limits on the amount that can be borrowed.

Christian Lending Personal Loans

Some Christian credit counseling organizations also offer debt consolidation loans. This is designed to get the person out of debt:

  • You’ll work with a financial counselor to total all you bills and negotiate with your creditors to obtain the lowest monthly payment
  • You only have to make one payment a month
  • There are usually some flexible options and repayment plans available

Reasons to get a personal loan

Every time you borrow money from someone, whether a friend, a family member, or from financial institutions such as banks, you are basically borrowing from your future. You will need to pay the money back. Sometimes, you also need to pay the interest. It is for this reason that you need to be very sure about the money you are going to borrow. You need to have the right reasons for borrowing money and you need to make sure you can keep up with the payment scheme you and the lender have agreed to.

According to personalloans.org (http://www.personalloans.org/five-great-reasons-to-take-out-a-personal-loan/), here are a few reasons why you need to get a personal loan:

  • Debt consolidation – Personal loans can help you consolidate high interest credit card debt into a lower interest, fixed rate loans with manageable monthly payments that can help you get out of credit card debt faster.
  • Buying a car – Interest rates for auto loans are usually lower than those for personal loans, so if you can get a car loan to buy the car of your dreams, go for it. Most banks won’t offer auto loans on older cars with lower resale value, however, since the collateral isn’t worth much. In that case, a personal loan is the way to go.
  • Car repairs – If you have an accident, auto insurance often doesn’t cover all the repairs. You can take out a personal loan to get your ride back on the street fast.
  • Medical expenses – When you have a serious illness or injury that requires hospitalization or emergency medical aid, the bills often come in faster than you can keep up. Always verify what portion insurance will pay first, but if you don’t have enough in savings to pay the rest, you can often use personal loans to pay your balance. Not only will it keep bill collectors off your back, but it will help your credit score.
  • Family vacations – While you don’t want to mortgage your future on frivolous trips, taking a family vacation can often bring families together and must be timed when school is out. If you’re careful, you can use personal loans to take that trip with your family. The memories will last a lifetime, and the loan can be paid off in a matter of months.

Personal loans are unsecured and do not require collateral. Because of this, interest rates will be higher than secured loans, and there will be a fixed payment terms that includes interest rates and loan length as well.