Bankruptcy !

When the GFC struck in 08 it catapulted many young people into severe financial distress - and many of them have turned to bankruptcy to lift the load and make a new start.   In the past year, 1268 young people under twenty-five filed for bankruptcy protection.

Before 2008 the banks were literally throwing credit cards and high credit limits at young people fresh out of school.   Once they had a job their desires were for a car and some smart clothing, and in most cases they were handling this debt responsibly - until the GFC started making jobs disappear - and with them the means to service those debts.

It becomes an impossible situation.  Credit card debt attracts an interest rate of around  20% and with penalties for not meeting the minimum repayment on the due date the balance owing soares.   The lure of bankruptcy as an answer seems too good to be true.   Just wait out the usual three years under the control of a trustee - and you walk away, debt free !

It is true that most people who are declared bankrupt are " released " after three years, but during that time they must surrender their passport and can not leave the country without the express permission of their trustee.   There are also a host of other restrictions, such as being prevented from starting a company or serving as a director - nor can a person under a bankruptcy order stand for election to parliament.

Even when that " release " is granted, the fact that the person has been a bankrupt will still appear on all credit reference files for another seven years - and that will make it almost impossible to rent a house, buy a car or enter into any of the small transactions that make life comfortable.  You can expect refusal if you want to hire a television, get a department store credit card or subscribe for pay TV reception.

Many former bankrupts comment that the stigma of bankruptcy tends " to follow you everywhere - like a bad smell that will not go away ".!

Bankruptcy should be the absolutely last resort.  Unfortunately, many people rush into it because they see no other option, and yet they have probably neglected to do the first thing any competent adviser would suggest - and that is to go and sit down with the credit provider and work out a solution.

The first option is to get the account closed down - so further interest does not accrue.  It is far better to keep chipping away at a static debt than to suffer the long lasting trauma of the bankruptcy court.

Young people with debt problems would be well advised to seek out a competent financial counsellor, rather than heeding the advice of family or friends, who may not have the financial expertise such a complex matter needs.

The right advice can result in most people avoiding the anguish of the bankruptcy court !