Help! A good friend is facing bankruptcy because she has a large debt (about $30k) which she cannot pay and she has no security to get that size bank loan. But she does have more than $30k in her super fund. Can she withdraw from her super under "hardship' provisions (or any other provisions)in order to settle the debt and avoid the bankruptcy??
Withdraw some super to avoid bankruptcy?
Shadow54 on 06/09/2014 - 17:18
Comments
$30k is a really small amount to go bankrupt over. She should talk to the creditor, explain she needs a revised payment plan that works better for her situation. The creditor won't want to lose their money and will renegotiate.
That is not how bankruptcy works.
Unless you're a bank too big to fail, in some other countries at least. :(
They do it here, too. They bailed out Westpac only about 20yrs ago. The SA Govt bailed out the SASBank as well about 15yrs ago.
what the correct answer?
I thought the creditor lose the money ( but is tax deductible from their profits)
so if you go bankrupt for $1 Million at CBA. If they make $400 million will only need to pay tax on $399m
this is the risk they take when lending you money and why they charge interest to compensate the riskOnly if the bank go bankrupt they government will pay them out
@infinite: Westpac made a $1.6 Billion loss in 1992. The government didn't bail out Westpac, the shareholders did. Westpac raised $1.2 Billion in new capital via a 3 for 10 rights issue at $3 per share.
The South Australian Government sold Bank of South Australia to Advance Bank in 1992. Advance was purchased by St George in 1997. And in 2008 St George merged with …Westpac.
@billyboy402:
If they lose $1m, they make $1m less profit. If they would have made $400m, then they will only make $399m.
I don't know what Westpac's effective tax rate is, but it will be 30% or less, so in this case the gov would get $300,000 less tax. Of course, I expect Westpac would be paying less than 30% tax.
I think you can be a bankrupt and still have your hard earned super quarantined from your creditors. it is important to hang on to your super for your retirement years.
Best plan:
Go to local community help agency and get proper financial advise and support. they may be able to offer alternative suggestion and do some negotiations for her.Need to be able to make the best of a difficult situation.
I know of a person who owed millions to a large bank, they realised he had lost it in GFC and there was no more to get and they did not pursue him for repayment.
Debt Agreements are a crock, they are an act of bankruptcy and the debt agreement company makes all the money.
YEAthey are shit - they have all the bad parts of going bankrupt + you have to pay.
Just go bankrupt and save the monthly payment 3 years later you will be clear and have some saving
Government is not allowed to use Super to claim debt so I would find it odd that you can tap into your super to pay off debt.
But hey, I haven't really looked into, was just always curious that X person has Y debt with ATO they aren't paying back while also have Z super monies held by the ATO. Why doesn't the ATO pay off part of the debt with the Super monies? Got told 'Nope, doesn't work like that, can't be done'. So, yeah.
Access to financial counselling services is available through the national telephone financial counselling
helpline on 1800 007 007.
These are government funded agencies that will help her protect her interests.
agreed, they have better knowledge than many of the couch advisers here….
ASIC's page on financial-counselling
What financial counsellors do
Financial counsellors provide a free, confidential and independent service.Financial counsellors can:
- Suggest ways to improve your financial situation
- See if you are eligible for government assistance
- Negotiate repayment arrangements with your creditors
- Explain your options and their consequences, including debt recovery procedures, bankruptcy and other >alternatives
- Help you apply for a hardship variation
- Help you organise your finances and do a budget
- Refer you to other services, for example, a gambling helpline, family support, personal counselling or community legal aid
In the long run sucking your super dry is financially unwise. A $30K reduction now, although seems small, may equate to $100K considering compounding over a very long period. An option could be to renegotiate the terms of the loan with the lender. Perhaps they could reduce the interest rate, or go to interest only until in a better position, or accept a reduced payout. Honestly, going bankrupt would probably have a better outcome on your bottom line than using up your super. Because the chance are you will never "repay" your super to yourself like you would a creditor.
The only way you could touch your super or some of it, is that you are unemployed and have no money, be on Centrelink for more that six months, then they will start reviewing and accessing how much they could provide for your hardship.
Thats not entirely accurate.
You can also access your super for;
- Financial hardship. However the criteria is strict (Bank repossession of your home)
- Life threatening medical expenses / surgery etc
I apologise in advance but given the fact that I have read many times on Ozbargain that Australia is the "lucky country" I feel I have to say that it does not seem to be such a "lucky" and "perfect" country to me after all if one even has to think about withdrawing the super (thereby jeopardising his or her well-being in retirement) for life-threatening medical expenses and surgery.
There are many countries in Europe (who have been hit much harder than Oz by the GFC and have not had a bdget surplus in decades) where such a think would be unnecessary, even unthinkable - maybe those are the real lucky countries (if health is one of one's priorities??
Don't get me wrong - not complaining about Australia but maybe that is something that should be improved. It simply isn't fair that people who work hard (and pay tax and Medicare levy), accumulate a super, and generally try to do everything right, are then forced to do this for life-threatening or rather life-saving medical expenses, merely because the government is bad at managing the health system which should cover exactly this situation first and foremost.Don't get me wrong either. But my belief is, nearly all life threatening surgeries in Australia will be conducted in Australia to save ur life, whether you have money or not in public hospitals. I could be wrong.
My understanding of that dot point is if u need surgery, possibly outside of the public system, ie, if u r overseas etc, u can dip into ur super to cover it.
I still think we're a "pretty lucky" country compared to most.
Apology accepted Lysander
Your comments are based on incorrect information.
The very first comment to the OP gave a link to the ATO giving information about accessing your super.
Had you read that , you would have found this -Accessing your super before you retire is only allowed in very limited circumstances, such as:
severe financial hardship
certain compassionate grounds
a terminal medical condition
permanent or temporary incapacity.Life - threatening or life saving medical expenses are covered by Universal Health Cover known as Medicare.
(As well as not so life threatening expenses !)So maybe the "government" is not so bad at managing the health system after all, and the "government" did manage the GFC better than say many countries in Europe.
One last tip, if you bandy about an Australianism like the "Lucky Country" be sure to know its real meaning.
OK, fair enough point with the terminal illness. Was just going by what was posted. However, one thng I am not wrong about is that Medicare does not cover dental while the system in most European countries do. For me that is very important, so I still do not consider it lucky I am afraid. Without my private (overseas) insurance I would have been out about $1500 for dental treatment, this way I am out nothing. Yes, there is private insurance available here but it is much more limited and more expensive than overseas hence of limited use.
I think you will agree that given the amount of money Medicare swallows annnually basic dental services should be included. But of course, since every doctor here can charge whatever they want for the same service, this is not possible (elsewhere for basic services, it is regulated so all doctors charge the same for those basic services - same with prescribed medicines).I am afraid to say that in my humble opinion Australia did not MANAGE the GFC better than many countries in Europe (although they DID manage better than Greece, Portugal, and Spain - I give you that), they are just "lucky" they have so many resources that can be exploited and sold to China. Without China and its growth, the outlook for Australia would have been quite gloomy (can see it even today, as soon as mining slows down, the currency goes down). Now that China's growth is slowing down, Australia is not doing so well, even absent a GFC.
I am not sure where you are but I find it amazing that on Federal level and in Queensland 20000 government jobs each can go with no apparent adverse effect - what does that mean? The job losses (and the budget in QLD) certainly mean that even without a GFC Australia is going into debt just like every other country.Management had nothing to do with it - in that respect Australia was really the "lucky" country.
And all the Aussies I asked about what "lucky country" means have given me different answers - it seems to me it means something different for everybody. Personally I am not so proud of being lucky but maybe of being super productive, efficient, even friendly as those are all things in the hands of the people while "luck" is not.Thank you for letting me know your opinion and those facts - good to know there is still compassionin the Tax Office. ;-)
Don't get me wrong - not complaining about Australia but..
And again
However, one thng I am not wrong about is that Medicare does not cover dental while the system in most European countries do.
And another
I am afraid to say that in my humble opinion Australia did not…
You are going way to far off topic here.
I wish I only had $30000 debt.
As others have said, talk to whoever you owe the money to and come up with a payment plan. They would want something rather than nothing. You can probably get them to freeze interest and stop applying additional fees as well. Just stand your ground and don't over commit on the repayments. Good luck.
Just be aware, if you come to an arrangement that involves a debt agreement, that is still an act of Bankruptcy and will be registered as such with Credit Reference companies, so basically a worse outcome the declaring bankruptcy as you will still have to pay back the loan.
Getting bankrupt is not an ideal thing in life if there is another option. If the debt is genuine and has to be paid off, it will be better to enter into an agreement to gt this settled
I never ended up having to use this advice, but I found this site to be helpful in understanding your options.
http://www.fredappleton.com.au/
Been in the same situation.
No, can't use super for that kind of debt. You have to have special medical circumstances or require the money to stop the bank taking possession of your house. Pretty much the only circumstances.
Two ways you can take super out early
Financial Hardship.
To be eligible for a financial hardship benefit application, you need to be a on an eligible government assistance payment for the last 26 consecutive weeks. If the type of payment you are on changes the 26 week period resets. You can only withdraw a maximum of 10k BEFORE tax and you can make one claim per 12 month period
Compassionate Grounds
The department of human services will generally approve early release of super for medical expenses, funeral expenses, modifications to homes or vehicles required due to medical conditions ie wheelchair ramps and whatnot. The amount approved for release is set by them here. Tax is applied here so make sure they are aware how much you need and take tax into account.
Both of these payments will attract a tax of 22% ie you take 10k out you will only see 7800 show up in your bank account. Your fund will likely charge a withdrawal fee as well.
From my understanding the tax paid is declarable on your tax return so keep all paper work sent out to you if you do take money out. You should receive a statement declaring the payment and the tax withheld.
Has your friend met preservation age? You could lodge for a retirement claim then come out of retirement like many do. Tax and legal implications here I'm not sure of..
And as mentioned $30k is really not much debt to declare yourself bankrupt…
If going for bankruptcy might want to take out a few more credit cards and really go for broke.
I know this post isn't serious but if by some small chance it is, well it wouldn't work unless you're fraudulent somehow. The credit provider will see how much debt you have already and not approve you for any more credit cards.
$30K doesn't seem like much debt to manage. Unless you don't have a job or have really high living expenses.
- Talk to an FIS officer at Centrelink.
- Apply for a repayment plan with the 'maximum' term (or minimum repayment) available and stick to it.
- Are you a foreign citizen or an Australian PR only? Then on leaving the country (permanently), you can cash out all super (35% tax on concessional portion + fees/charges will be deducted). You would need a one way ticket out of Oz and a letter from DIAC stating your departure + purpose for that.
- Like you said. But apart from conditions you will have to make a strong case for financial hardship application with APRA, get a letter of release of super. It is their discretion.
- Move in to a cheaper/shared accommodation far from the expensive/city area. You will have to change your lifestyle and expenditures for, say a year, while you get serious working hard.
- Most importantly, don't get caught by Nimble and the similar loan sharks.
- Decreasing living expenditures is hard. but its only for a moment. So plan a fixed (realistic) budget using an online excel sheet, like google docs, that you can access from anywhere, to remind you about saving up.
Departing Australia super payment (DASP) requires VISA cancellation + physically departed from the country. Some extra paperwork required for $5k+ balance. Hardly worth unless one do really intended to depart the country for long long time.
Dear Shadow
No, superannuation is preserved and can only be touched if it's to finance an arreas on a home that's about to be repossessed, or for compassionate reasons and unforseen medical expenses as suggested elsewhere in her thread.
What she should do, is perform a 'realistic' budget, as a starting point, including all income, current expenses including those of her dependents and then what the repayment capacity is.
Part IX Debt agreements are only useful if there is security such as a home, that is looking to be protected, as it's considered an act of bankruptcy.
You can go into informal arrangements with a financial service like Justbudget, who will negotiate with your creditors for you according to your capacity to repay. There are fees with these services, including application and realisations, however, they may be able to negiotate with creditors at a lower rate than 100% in the dollar.
There are many things to consider such as the nature of their employment, possible travel restrictions, if it's a temporary problem or if there is a long-term upside to her current situation. If she gets a periodic bonus, or is expecting a tax return, she may be able to put an offer on the table - say 75 cents in the dollar, to a smaller creditor and wipe the debt.
Good luck!
Without more information about what sort of assets she has it is unrealistic to offer options. If she has no property assets and is young and on a fairly low wage, bankruptcy is a real option, but not normally pushed by lawyers who would rather you sign a debt agreement so they can make more money out of it.
Have a read of this on the ATO website - Accessing your Super before retirement