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How To Restrict the Lending Capacity of Your Debtors

There is nothing worse than seeing someone living it up when they owe you money. Unfortunately, it is becoming more common than ever! It is also becoming more accessible for people to see, with people sharing their lives online with social media.

We recently held a seminar on this topic. If you missed our seminar, this article will give you some tips and an overview of what you can do to restrict the lending capacity of your debtors.

You have Options

There are a number of legal and non-legal options you can pursue. When deciding on which way to proceed, make sure you keep the amount of the debt in mind. Some of the legal options may cost more than the debt is worth. The other main factor to take into account is how practical it will be to locate and serve the debtor.

Non-Legal Options  

If you don’t want to spend much money or a lot of time on your matter, you can:

  1. Notify credit agencies of payment defaults. Financiers will frequently consider payment defaults when considering whether to approve a loan;
  2. Notify your insurer;
  3. Notify the police if they have also breached a criminal law. Not paying a debt on its own is not enough. However, you could notify police if the failure to pay included an allegation of fraud.

Best Option for Individuals – Bankruptcy

If you are successful in making someone bankrupt, a trustee in bankruptcy will be appointed. The trustee manages the bankrupt’s financial affairs, can pursue any claims and distribute funds to creditors.

Because the person is no longer in charge of their finances, banks will often refuse to advance them any funds. It also shows the financier that:

  • They are a person who takes high risks and are not good at managing their own finances; and
  • While bankrupt, they will have a cap on their income. The financier has to consider if this cap is enough to pay back any further loans on top of their existing living expenses.

Best Option for Companies – Liquidation

Liquidation is a similar concept to bankruptcy, but it applies to companies.

Often companies in liquidation will be closed down, the assets sold and any funds distributed between the creditors. Companies in liquidation won’t receive any further loans. As the company is a separate legal entity to the individual director, it has less effect on the lending capacity of the individual.

However, the individual director or owner can be effected if they were also employed by the business. If the company goes into liquidation, they will lose their job and any income. This will in turn reduce their lending capacity. This consequence can be very severe for family run businesses, as the whole family would be out of a job.

The other way to use liquidation is to use it to prompt ASIC to disqualify the director. A person can be disqualified from being a director if they have 2 or more failed companies within 7 years and creditors are paid less than 50 cents in the dollar. This carries a disqualification of up to 5 years and there are more severe options of disqualifying a director for up to 20 years.

If you want to hear more, keep an eye out for the video of our recent webinar.

Should you have any specific questions regarding money you are owed, contact one of our experienced bankruptcy and insolvency lawyers at Taurus Legal Management on (03) 9481 2000 or info@tauruslawyers.com.au.

Posted by Taurus Legal Management