Bankruptcy Recovery Advice

Question

My husband went bankrupt in 87

Wonder if you can help.

I am 52 with a full time job paying $61,500 which I have just started. Up until this time I have been earning around $48,000. I have worked all my married life, raising two children, at the same time. My husband went bankrupt in 87 lost our home and was unemployed for 12 months. He then went in business again three years later but in 1996 he sold our second home and sunk the funds in his business which I worked with him. I left him in 98 having had enough and left without a cent, no car, nowhere to live. After two years of trying to get some mat prop I landed up with a lounge suite and a double bed. When I first left him I got a job paying $12 an hour.

My problem is that I have debt, cannot ever hope to get out of it, even though I am now on a good wage. I still rent, I am still paying off my car, I have a credit card debt which never goes away and I have very little in the bank. Over the years I have purchased things like a fridge and washing machine, cutlery, crockery and all the stuff you need for a home.

I need to help to get out of my debt and wonder if you can give me some advice. I am 52 with no retirement fund, no savings, no home. My credit card is at $5,700, I have $3,500 savings and my car repayments are $332 a month with 18 months to run. My rent is $290 per week. You would think i could sort this out but it just doesn’t go away. I try not to spend too much and I don’t think I do really. I buy my cosmetics and skincare from strawberry.net which is half the price of what’s in the shops, i buy cheap clothes and sometimes second hand clothes, i take my lunch to work and eat little at night and I don’t drink.

I was in a relationship for seven years (just finished) and I did seem to pay a lot out in food (my ex was a lawyer self-employed and I did his typing in the evenings. he earned heaps but was very tight). If he entertained it was me who provided and cooked. I paid him rent to live in his house, cook and clean and type his work. Stupid me!

Can you give me some advice on how I might get out of this predicament and started getting financially secure. Time is really running out for me.

Cris

Answer

If there were an award for a first rate, tough time you would be decorated medal and bar. You have certainly tried, but what attracts you to these guys? While not a direct financial issue, this ‘fatal attraction’ is a factor that you should clearly identify before going into any new relationship! Now before all those out there start shouting foul, many folk seem to go from one disaster to another without stopping to find the core problem – enough said.

In relationships, you have not fared well - agreed. Have you considered a claim under the Property Relationship Act? I suggest you talk to a good lawyer to see if you have a case. The specific areas to consider could be the contribution you made to your ex-partners business by way of the unpaid work and the general life or household contributions you made over the length of the relationship. Don’t waste too much money but you should at least take advice. 

With that behind you look ahead, you may have turned the corner with your new position and not know it as yet. The extra dollars of income at the new salary level of $61,500 will make a world of difference to you. You now face a fresh new world, so move on positively. 

It is really tough, but first understand that the fixed costs of running of a home are much the same regardless of whether one or two adults, even with one small child, live there. Power, phone, rent, water, insurance, and other fixed services are impacted little.

Rent or mortgage aside, in our experience, around $2,400 to $2,600 per month is required to run a home in very modest terms, not allowing for luxuries or capital items of course. Take this sum, along with rent and hire purchase, from your net salary before your increase and you will see why it's been tough to make headway.

Your savings are your safety net, right? They could be except for your credit card debt. Take the savings and pay down the debt. The interest on the current $5,700 outstanding balance is $1080 per annum. Continuing to pay the monthly $171.00, 3% minimum is a disaster as $90.00 is interest alone, assuming no fees or penalties. The small interest earned on your savings is taxable, the interest on the card debt paid with taxed income. Do the math and you will see you are on a treadmill to nowhere.

Folk seem unable to break the cycle of being dependent upon either a credit card (at or over it's credit limit) or the 'EFTPOS every transaction' method of cash management. An EFTPOS card is possibly the worst banking tool ever perpetrated upon the unwary. The swipe transaction is totally divorced from reality. Advice: 1) Take the card away from your purse, put it in a safe. 2) Live within a budget. 3) Take a cash allowance each week. 4) If there is nothing in your purse - don’t buy. It is that simple really.

A quick analysis of your expenses suggests you have around $523.00 net per week after rent and car payments. Take $100.00 per week, in cash, for out of pocket expenses like fuel, coffees, the ‘little things' etc. Buy household supplies only once a week or fortnight from a written list. Allocate an extra $100.00 per week to credit card reduction and the outstanding core balance of $2,200 will be gone in six months (but keep the credit card for emergency funding).

This leaves $323.00 per week for other household expenses, very tight but manageable. It might be you need to write down your expenditure for a time as many do not believe how easily the dollars slip away – but the cash, the act of handing over $20.00 notes is very salutary.  

Enjoy your progress and do not forget to reward yourself in little ways. The next challenge is to start investing for your future security, tidy up the car payments, fix the credit card debt and you have around $732.00 per month to work with. But one step at a time is fine.

Original Article published June 2005