Don’t become bankrupt in these last days!

Upcoming financial disaster

The world is swimming in debt at the moment with Australia’s public debt levels expected to reach $1 trillion dollars in the next few years.  Check out the world debt clock.  This year there has been an unparalleled explosion in debt as countries battle the financial crisis that has come as a result of the Corona virus.  Markets have collapsed and risen and there is much uncertainty in the world at the moment.  My view is that the upcoming financial disaster will have major implications as we hurtle towards the cataclysmic final seven year period.  One of my major concerns is the restriction of the movement of people across borders both domestic and international.  International borders have been firmly shut and the virus has future implications for travel overseas.  One thing that has been talked about for international travel is having an ‘immunity passport‘ which is a physical or digital document proving immunity from the virus allowing one all sorts of privileges.  Another real problem I also see is with personal bankruptcy which is caused by being in an unsolvable personal debt crisis.

Debt a double-edged sword

The prevailing universal belief sprouted by economic professors, financial advisors, governments, bankers and just about everyone we speak to is that debt is not something that we need to worry about particularly now that we have record low interest rates which have even become negative in some countries such as Denmark.  Debt is said to be a tool to gain prosperity but that is in fact a myth.  The truth is that debt puts a stranglehold on you so that you cannot use your money the way you want to.  Australians have the world’s second highest household debt in the world, second only to the Swiss.  Australians are not just using debt to buy homes but are using their mortgages to finance their lifestyles.  Over and over again, we hear the myth that you need other people’s money to prosper.  We’re told all the time that sophisticated and disciplined financiers use debt to their advantage.  Debt is like a double edged sword–when managed well in normal times it can be like a sharp tool cutting for you but when things go sour then it is like a tool that will bring you harm and cut into you possibly forcing you into bankruptcy.  It is also said that debt is like a lever which can help you lift heavy loads making it possible to buy homes, cars and businesses.  All very well but what happens when a ‘black swan event‘ occurs like the recent pandemic?  Thousands of people have and will lose incomes, businesses and livelihoods.  Increasingly we are seeing dead city centres, vacant shops and we are yet to see what will happen when the mortgage holidays will come to an end.  The truth is that when you take on debt with other people’s money you take on risk. And in the end times, you don’t want to be in debt because being in debt means that other people can dictate to you what happens in your life particularly if you declare bankruptcy.

Bankruptcy

In Australia and quite likely in other countries too, when you declare bankruptcy because you just cannot pay your overwhelming debts, you effectively give over your rights to your trustee.  In most cases your trustee is the Australian Government in the form of the Australian Financial Security Authority.¹  One of the restrictions is that you cannot leave the country unless you obtain the permission of ASFA.  Now, permission would likely be given to someone requiring, say a short visit to visit relatives in New Zealand but what about if you wanted to move permanently overseas for work or to relocate?  You would be unlikely to receive permission from your trustee because it would look like you are running away from paying your debts.