Help please: Bankruptcy and saving my house

[Perp]

If I could choose to declare bankruptcy and donate the difference to starving africans, I would sooner do that if I was that way inclined then in effect donate money to a bank!

How is paying back a debt that you agreed to re-pay a donation? (Though I'd love to see the money going to starving Africans.)

And while he is living in the home if he decided to do some renovations thats no ones business but his own.

If he's deliberately reducing the value of an asset which the creditors have a claim against, of course it's their business. Such behaviour is outrageous, and I'm pleased to see that smileyface agrees.

Bankruptcy protects you from these creditors. DO not enter into arrangements that benifit only them at this point.

You are entitled to walk away and as terry says earn a wage for the next few years till you can start again.

I guess I see a distinction between a "safety net" and an "entitlement". For example, welfare is a protection against unemployment or disability, but that doesn't mean that you have an "entitlement", for example, to choose not to work because you've done the sums and consider that you'd be personally better off on the dole than working a low-paid job. Likewise, bankruptcy should be a last resort, not a choice because it gives you an outcome that's better for you personally.

Similarly, if there is a way of repaying creditors post-bankruptcy, then you should. I couldn't enjoy wealth if I knew it was built on having victimised people in the past.

I know that my father has received cheques from ex-bankrupts years after they've been discharged from bankruptcy and the debt had been written off. Admittedly, he's in a small town, where reputation counts; I'm quite willing to accept that this may be highly unusual in the city.

Why should you (unless you earn say 150k p.a.) give them any more than they are entitled to.

Again, they're "entitled" to full payment. They may be forced to accept less as a matter of pragmatism, but that's quite a different matter.

Thats what it all comes down to. If you only earn marginally over what you are entitled to under a bankruptcy then why the hell would you do anything other than declaring yourself bankrupt?

To do the right thing? I'm amazed you could even ask such a question.

The law is there to protect you, use it. Slavary and endentured servitude went out in the 19th century, irrespective of the few here who might like to see a return to it....

I do agree that if there is no capacity of ever repaying, it's a good idea to have the protection of a bankruptcy option, so that people can re-start their lives. But it shouldn't be seen simply as a way of managing finances to produce an optimal outcome for the individual.

smileyface, I do think it's crazy that the ATO won't accept a payment arrangement over more than 2 years - especially for $320K - they would almost certainly be better off accepting payment over 10 or 20 years, for example, than sending you bankrupt.

I'm sorry to hear that you're in this position. I acknowledge that you are not seeking to do anything unethical, and that you probably don't share tom32's views on many of these issues. Good luck to you, and thanks for sharing with us. Please do keep us informed, because as ianvestor has said, the stigma surrounding bankruptcy means that many of us have little insight into the process. Being investors, any of us could be there one day , so it's useful to be informed.

 

[Ausprop]

FWIW, insolvency practiioners adopt a ruthless view when assessing a company's position... there is diddlies worth of consideration for who will get hurt or ethics. it's clear cut: what can the business not pay by going into an insolvency arrangement and is it commercially better off therefore to do so. Individuals need to run their lives as a business as well

 

[kathryn d]

I really abhor that phrase 'tax payers money'. Besides the fact that he's being forced by law to hand over his money... It doesn't belong to the 'taxpayer' until it falls due. Before it falls due, it's still his money.

I guess it's similar in some ways to the phrase 'kids inheritance'.

When it is determine to be due..and it seems to have been..it is tax payers money.
This applies to everyone.

 

[coastymike]

Just as the bankrupt person has taken a risk so has the other person. They have taken a risk to lend someone money. To mitigate this risk they lodge caveats over property and mortgages. If those are not sufficient to pay the debts then they know the risk they have taken. Why should they get there money back when they have taken a risk on the other side and it hasnt worked out ? If you don't want to risk losing money to a bankrupt then don't lend money to anyone. Don't provide services to anyone. Don't rent your property to anyone. Noone is forcing you to take any risks at all

 

[tom32]

Lets see if we can find some middle ground again perp.

How is paying back a debt that you agreed to re-pay a donation? (Though I'd love to see the money going to starving Africans.)

I am not in the habit of giving people any more than they are entitled to unless they are in need. Of course I consider myself reasonable, but I think we all do? When the law allows for something to occur to do more than this is in my opinion donating money, this I leave only for charities.

Here we go put yourself in these shoes.... If you found yourself with a bank contract which had a term which prevented them from ever charging you interest on a loan and they came to you cap in hand and said, please we need to sign you up on a new mortgage contract this one does not work, you cannot tell me you would give this entitlement away? This may be a far more limited facet of the common law then simple bankruptcy and yet I imagine most would latch on and use this? would you? Why should people give the entitlement to bankruptcy away either? It is everyones right and if it suits, why not use it.

If he's deliberately reducing the value of an asset which the creditors have a claim against, of course it's their business. Such behaviour is outrageous, and I'm pleased to see that smileyface agrees.

For now he is in possession of the property. He can renovate, or partly renovate if he chooses. Of course it is better he says here he would not do that....

I guess I see a distinction between a "safety net" and an "entitlement". For example, welfare is a protection against unemployment or disability, but that doesn't mean that you have an "entitlement", for example, to choose not to work because you've done the sums and consider that you'd be personally better off on the dole than working a low-paid job. Likewise, bankruptcy should be a last resort, not a choice because it gives you an outcome that's better for you personally.

Welfare I guess is not an entitlement unless you actively seek work, but I suppose I am better not to go down that path... Bankruptcy however is a protection, perhaps that is a better word than entitlement under the law. In the past people would never lend the sums they do today, somewhere in the deregulation of the finance world we seem to have forgotten how easy it is to shirk ones debts. The protection has always been there and I guess I see it from the other angle, both parties went into the transaction with their eyes open. Both parties are at least equally responsible for bad debt.

Similarly, if there is a way of repaying creditors post-bankruptcy, then you should. I couldn't enjoy wealth if I knew it was built on having victimised people in the past.

There is often a way. But is this a good idea in a capitalist economy? that one person owe so much to anotehr that anything up to a life of servitude is on the table? I don't think it is.

I know that my father has received cheques from ex-bankrupts years after they've been discharged from bankruptcy and the debt had been written off. Admittedly, he's in a small town, where reputation counts; I'm quite willing to accept that this may be highly unusual in the city.

It may have been as a result of the bankruptcy itself. This can often take years for an individuals old assets to get carved up and sold off.

If it was an individual paying up after his bankruptcy I suspect the amount would have been in the thousands not the hundreds of thousands. There are many pragmatic reasons for paying small debts whether they remain lawfull debts or not. When the chips are down (in this case 270k to the ATO) bankruptcy is often the way to go, and I suggest that smileyface would be completely daft to give any more to the ATO at the end of the bankruptcy period than he needs to. (I would suggest he would be even more daft to give them any less too!)

Again, they're "entitled" to full payment. They may be forced to accept less as a matter of pragmatism, but that's quite a different matter.

They are entitled to this untill an individual declares bankruptcy. From that point their are a range of provisions which reduce their entitlement in line with their assets and depending on the order in the foodchain they might sit. ATO it turns out sits right at the top before even secured creditors like banks!

To do the right thing? I'm amazed you could even ask such a question.

I guess working in a commercial environment has hardened me or perhaps even corrupted me. I hand back change when I am given too much at the supermarket like most but when I have a commercial entitlement in my line of work I take it unless thier is a pragmatic reason like a relationship, future work etc why I should not.

I do agree that if there is no capacity of ever repaying, it's a good idea to have the protection of a bankruptcy option, so that people can re-start their lives. But it shouldn't be seen simply as a way of managing finances to produce an optimal outcome for the individual.

It is painfull a bankruptcy. People will not take it unless it benifits them but I think people should understand their rights around it.

I feel desperately sorry for people who are locked into say a mortgage paying interest when perhaps for them it is better to declare bankruptcy. I think people should know what their rights are.

To overlay bankruptcy with some moral outcome is in my view unethical in itself. It is simply people utilising a right. What is important is when lending someone money you understand that this is allowed.

One final bit of advice to anyone who thinks they are being overwheled by debt. Do not go to debt consolidation unless it genuinely means you will be paying less interest and this lesser amount is really affordable to you. If you cannot handle your debt the sooner you get the clock ticking on the bankruptcy the better.

 

[kathryn d]

Just as the bankrupt person has taken a risk so has the other person. They have taken a risk to lend someone money. To mitigate this risk they lodge caveats over property and mortgages. If those are not sufficient to pay the debts then they know the risk they have taken. Why should they get there money back when they have taken a risk on the other side and it hasnt worked out ? If you don't want to risk losing money to a bankrupt then don't lend money to anyone. Don't provide services to anyone. Don't rent your property to anyone. Noone is forcing you to take any risks at all

What do you say about a PM pocketing rent from LLs, insteading of passing this money along.Instead they use this money for other purposes than intended. The Pm loses that money thru a venture, that went south, and are now unable to give the LL their rent. The PM declares bankruptcy, and the LLs are left with nothing.
Do you think this is fair?

Owing the ATO 320k is not chump change.
For this to happen, there must have been a business of some sort, and chances are he wasn't passing along the GST and/or other taxes he had been collecting.If I am wrong, he can declare where the debt comes from to clarify.

I find it amazing so many here think theft is appropriate.
I beleive when you sign a contract, you make good on it.
If you borrow money, you pay it back.
Using bankruptcy is not better than being on welfare needlessly.
My personal tolerance for disgust has been exceded!!

 

[pennyk]

Owing the ATO 320k is not chump change.
For this to happen, there must have been a business of some sort, and chances are he wasn't passing along the GST and/or other taxes he had been collecting.If I am wrong, he can declare where the debt comes from to clarify.

Smileyface did clarify this in an earlier post. It is a personal debt, not a business debt.

 

[ianvestor]

When it is determine to be due..and it seems to have been..it is tax payers money.
This applies to everyone.

But as far as I can tell, he spent it before it was due, meaning he spent his own money.

 

[ianvestor]

I find it amazing so many here think theft is appropriate.

That's so ironic to me, given the ATO is in the business of legal theft.

 

[kathryn d]

Smileyface did clarify this in an earlier post. It is a personal debt, not a business debt.

I know he referred to it as personal debt.
Maybe someone can clarify how you can get into that much debt?
If it was from employed income, it would have been deducted from his paycheque, right?
Hopefully someone can offer other explainations of how this can happen.

 

[coastymike]

Kathryn

No it isn't fair. Neither was it fair when I provided services to clients and those companies went under and as an unsecured creditor our fees were paid out at 0.02 in the dollar. But that was our problem.

We could have asked for up front payment to mitigate the risks. In your scenario the person chose to use a property manager. Noone forced them to. We chose not to get the person to pay upfront. The laws therefore allow for that money to be lost. It was our choice and in your scenario the investors choice by making a decision that under the current laws this could be lost. life isn't fair. Just accept it and get on with it.

 

[kathryn d]

That's so ironic to me, given the ATO is in the business of legal theft.

It is the governments job to collect all taxes owing.
It is our job to legally minimize our amount of taxes owing.

I hate paying income taxes like the rest.
I have no intention of paying them ever again, but it will be done legally.
If we make a mistake, and a deduction is not allowed, we will make the payment owed.

 

[coastymike]

Kathryn a very basic example of how this could happen.

Client has a company and borrows $1m from that company and gives the funds to the children to buy a home. The company has already paid taxes on that profit.

What the client didn't know was that they were meant to have a Division 7a loan agreement.
Now because no Div 7a loan agreement then unfranked dividend to the client. that is $450k in tax on the $1m loan despite the fact company taxes have already been paid. So the company pays tax and the client pays tax. Can't access the money easily because children have used the funds to buy a home.

Then client finds out they have penalties and interest on the $450k. The penalties and interest in many cases can bring the debt to double the tax amount. This could mean the client owes the ATO $900k. So they actually lose most of the money in taxes, penalties and interest. In fact more because the company already paid the taxes.

So how does the client deal with this ?

 

[Perp]

I do see how people could get into debt which they are unable to repay, and that in many instances, it is even be beyond their control or not due to any excessive risk-taking or negligence on their part.

Upon further reflection, I agree with those who say that credit providers go into agreements with full knowledge that the borrower may go bankrupt, and that this is part of their commercial risk.

I guess the main aspect which troubles me is that bankruptcy can be voluntary. I still believe that it should be a last resort, used only when it becomes completely obvious that despite every effort of the debtor, they are unable to pay their debts, rather than a choice made earlier rather than later to minimise how much the creditors get. [FWIW, I assume that smileyface, unless he earns multi-$100K pa, and having tried to negotiate payments over a longer period, would fall into the category of being unable to pay, and I am not judging his situation.)

The use of the word "entitlement", and particularly the suggestion of trashing one's own home to try and defeat the bank's repossession, got my hackles up , but I don't suppose in reality we actually disagree too much, tom32. We perhaps just have a different style and as you rightly point out, you're probably less sensitive to the process due to greater exposure. And I accept that your advice to smileyface, whilst offensive to my sensibilities in some ways, is given purely to help out smileyface and without regard to the creditors, and in this context is probably great advice.

 

[kathryn d]

Kathryn a very basic example of how this could happen.

Client has a company and borrows $1m from that company and gives the funds to the children to buy a home. The company has already paid taxes on that profit.

What the client didn't know was that they were meant to have a Division 7a loan agreement.
Now because no Div 7a loan agreement then unfranked dividend to the client. that is $450k in tax on the $1m loan despite the fact company taxes have already been paid. So the company pays tax and the client pays tax. Can't access the money easily because children have used the funds to buy a home.

Then client finds out they have penalties and interest on the $450k. The penalties and interest in many cases can bring the debt to double the tax amount. This could mean the client owes the ATO $900k. So they actually lose most of the money in taxes, penalties and interest. In fact more because the company already paid the taxes.

So how does the client deal with this ?

OP said it was personal debt..not business.

 

[coastymike]

The lack of a complying loan agreement would make it an unfranked dividend to the individual making it a personal debt along with the penalties and interest. Think this is fair ? Over 100 per cent effective tax rate nice isn't it.

 

[kathryn d]

The lack of a complying loan agreement would make it an unfranked dividend to the individual making it a personal debt along with the penalties and interest. Think this is fair ? Over 100 per cent effective tax rate nice isn't it.

Honestly I don't care.
Laws seem to have be broken.
It was deemed he owes the money.
He's obligated to know the risk when he made the loan.

 

[Property Meister]

OP said it was personal debt..not business.

i am struggling to comprehend how you get a PERSONAL debt of $320k

unless he bought a $300k property for $500k which I imagine wouldnt happen or some recession/depression which we havent had

$30k credit card debt
$50k car debt
$20k personal loan debt

thats $100k, as an example

interest etc. add another $50k

I could imagine this happening over 10years+ due to combined interest etc. but I think you have been forced to do go bankruptcy within that period of time

 

[Perp]

i am struggling to comprehend how you get a PERSONAL debt of $320k

Then you should read what coastymike wrote, and get out more!

 

[Property Meister]

Then you should read what coastymike wrote, and get out more!

fair enough, missed that one, a bit complicated but if it is true, then fair enough.

btw. I am not judging the OP, i too when I was very young been in debt, it wouldnt be as much now but when you are young it felt like $10 million, bankruptcy never came into my mind and im glad I didnt