How to Avoid Bankruptcy?

No-one plans for failure. Why would you plan for failure, when all your energy is being directed toward success? You, the entrepreneur, knows that if you were to even slightly sway from the mindset of success, you may end up drowning in the oceans of failure.

No army goes into battle to surrender, no football team plays to lose, no entrepreneur goes into business to become insolvent, and no individual works hard for his family to end up bankrupt. But, life happens, things change, the economy fluctuates, a new government, a GFC, an insolvent debtor, a family tragedy, divorce, increase in taxes, unexpected debts, medical expenses and so many of life’s unexpected events could change everything, including your financial situation.

Steps to avoid Bankruptcy

  1. Eliminating credit cards
  2. Selling unnecessary items
  3. Exploring debt consolidation
  4. Trying credit counseling
  5. Creating a budget

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What is Bankruptcy?

Bankruptcy is a legal status of a person or other entity that cannot repay the debts it owes to creditors. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Bankruptcy is not the only legal status that an insolvent person or other entity may have, and the term bankruptcy is therefore not a synonym for insolvency. In some countries, bankruptcy is limited to individuals, and other forms of insolvency proceedings (such as liquidation and administration) are applied to companies. In the United States, bankruptcy is applied more broadly to formal insolvency proceedings. In France, the cognate French word banqueroute is used solely for cases of fraudulent bankruptcy, whereas the term faillite (cognate of “failure”) is used for bankruptcy in accordance with the law.

Act of Bankruptcy in Australia

The Bankruptcy Act 1966 (Commonwealth) is the legislation that governs bankruptcy in Australia. Only individuals can become bankrupt; insolvent companies go into liquidation or administration. There are three “parts” of the act under which the vast majority of “acts of bankruptcy” fall. Part IV (Full Bankruptcy), Part IX Debt Agreements and Part X Personal Insolvency Agreements. Agreements refer specifically to arrangements between creditors and debtors, whereas Part IV relates to full bankruptcy and is generally synonymous with “bankruptcy”.

A person or debtor can declare himself or herself bankrupt by lodging a debtor’s petition with the Official Receiver, which is the Australian Financial Security Authority (AFSA). A person can also be made bankrupt after a creditor’s petition results in the making of a sequestration order in the Federal Magistrates Court. To declare bankruptcy or for a creditors petition to be lodged, a minimum debt of $5,000 is required.



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