The problems caused by debts in general and in particular the problems caused by someone going into Bankruptcy affect not only that original person but can spread out and affect all sorts of other people and all sorts of other transactions.
Some examples of this are:-
- If a Will leaves something to a person who becomes Bankrupt, then the Trustee in Bankruptcy will seize the gift and use it to pay creditors and the person who was to be a beneficiary will miss out in most cases. If there is anyone who is named as a beneficiary in your Will and who is at risk of going Bankrupt then you should consider rewording the Will to try and prevent the Trustee from being able to take hold of the gift.
- Many people who go into Bankruptcy do so in situations where someone else has Guaranteed a loan that they made. Often the Guarantor is a spouse or a parent, or someone else close to the bankrupt person. The bank, or whoever is owed the money, can choose to chase any of the people, including the Guarantors and will usually not even bother chasing the Bankrupt person but will simply pursue the Guarantors.
- Financial problems are a common cause of the breakdown in a marriage. If the persons who are Guarantors for a loan are say the parents of the wife in a situation where the husband is the main bread winner then the husband may deliberately stop paying the loan in order to entangle the wife’s parents in a financial mess in order to put pressure on the wife to agree to some sort of Family Law settlement that she would not otherwise agree to.
- If you have your own Self Managed Superannuation Fund (SMSF) and you go Bankrupt you can no longer be a Trustee of the SMSF. This may force you to move the funds back into a Retail Fund run by one of the big financial institutions. This will mean several things including the fact that you have paid money to originally set up the SMSF and you will then have to pay the cost of moving back to a Retail Fund and the move back to a Retail Fund may affect your ability to control what is done with the assets in the Fund in the future.
If you have concerns in relation to these types of situations, please speak to Janis Donnelly-Coode here at Coode & Corry.