Money

What people learn from going bankrupt

Thousands of Australians go bankrupt every year, and it's a life-changing experience for many, writes Christine Long.

Brisbane woman Julie Rainbow is one of the thousands of Australians who go bankrupt every year.

More than a decade ago she and her then husband and their two children had what she describes as a "comfortable" financial situation.

Julie Ann Cairns went to the brink of bankruptcy.
Julie Ann Cairns went to the brink of bankruptcy. Photo: Supplied

"We had a really nice, lovely, big house; we both drove BMWs; we'd just had an amazing overseas holiday for six weeks," she says. "We certainly never had the wolves at the door chasing us for bills."

But shortly after their return from holiday, that lifestyle collapsed. Rainbow says she discovered that her husband had run up a million-dollar pile of debts that she knew nothing about, including some to members of her family.

Julie Rainbow says she went bankrupt because of her former husband's debts.
Julie Rainbow says she went bankrupt because of her former husband's debts. Photo: Supplied

"I had naively let my husband look after the finances and that was my downfall," she says.

Worse, she says, her husband vanished out of her life and, when debt collectors couldn't contact him, they hounded her instead. Without knowing the full extent of her husband's debts she took a lawyer's advice and went bankrupt.

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Even though it put a stop to the debt collectors, it had other immediate and longer-term ramifications. Suddenly, she was a single mother with no rental history and a bad credit rating for seven years.

"There are lots of implications that no one talks to you about beyond the initial bankruptcy," she says.

"I'm a 45-year-old woman who has had to start her life from scratch and I couldn't do that just when the bankruptcy ended which was three years. I had to wait until my credit rating lifted which was seven years. So it's a long time to be in a holding pattern, with no financial freedom, for seven years."

She worked three jobs to keep her children in expensive private schools and feels stronger for the experience.

"How I feel about money is how I feel about my life: I feel quite fearless about it," she says. "I feel capable of rebuilding my life and capable of being informed and making good financial decisions for myself, for my family. That gives you a sense of fearlessness – knowing that you are in charge of your financial destiny."

Rainbow now has a business called Clarity Road that runs workshops and mentoring programs for women who have undergone a complete life change as a result of things like divorce, bankruptcy and bereavement.

How I feel about money is how I feel about my life: I feel quite fearless about it.

Julie Rainbow

Rainbow says there has been no contact with her ex-husband in the past decade. Several years ago a private investigator tried to track him down, and he was thought to be living somewhere in the United States. Money was unable to contact him for comment.

Causes of bankruptcy

Rainbow is not alone. Domestic discord or relationship breakdown is one of the most common causes of personal insolvencies, including bankruptcies. The other causes are unemployment or loss of income and excessive use of credit, while for personal insolvencies connected to a business, it's economic conditions.

Figures from the Australian Financial Security Authority (AFSA) suggest personal insolvency rates are rising. In the December 2015 quarter, the number of personal insolvencies was 1.5 per cent higher than the same period in the previous year. This was the third consecutive quarter that the personal insolvency rate has increased, though the change has not been dramatic.

Personal insolvency figures include bankruptcies but also debt agreements and personal insolvency agreements, which which are options under the Bankruptcy Act for creditors to accept someone's proposal to settle his or her debts without actually going bankrupt.

There were a total 28,288 personal insolvencies in Australia for the 2014-2015 financial year and that included 17,163 bankruptcies, according to AFSA.

Another woman, Julie Ann Cairns also had a life-changing learning experience with money, though her lesson came from teetering on the brink of bankruptcy.

She and her partner were running a successful company teaching people  sharemarket and financial market investing. Their next step: listing the company on the stock exchange by the end of 2008.

To fund the move they found people to invest in the business via convertible notes. "A convertible note is like a loan unless you list [on the stock exchange], in which case the loan becomes shares in the company for the investors," explains Cairns.

But 2008 was a shaky year for financial markets and in October came the sell-out that triggered the global financial crisis.

"That completely dashed any chances of listing," she says, adding it had another unexpected consequence.

If they didn't list the debt had to be rolled over into some other kind of debt and suddenly banks weren't in a lending mood.

"So we basically had a couple of million dollars in debt that came due immediately and we didn't have enough cash in the business to pay it back," she says.

"We were nearly facing an insolvency situation and a bankruptcy situation for ourselves as a result of that."

Cairns describes what that felt like: "I actually remember when I realised the situation physically shaking. I seriously had a bit of a panic attack. I was scared and it was really that deep fear … just not knowing what life was going to bring and feeling so unsafe, and yeah, terrified."

Like a financial near-death experience that also became a moment of crystal-clear clarity for her. Suddenly she saw a parallel between what she was experiencing and something that had happened when she was growing up.

Cairns grew up the child of extremely wealthy parents. The family would fly in a private jet when they went on holidays and she and her brother attended elite schools. But then her parents went through a dramatic break-up and lost everything.

As she writes in her book The Abundance Code (published by Hay House), she saw how her own roller-coaster financial life was mimicking her parents' experience. Before launching the financial education company she and her partner had already made millions through real estate investments and then lost a lot of it by investing in several retail businesses.

"Connecting those two dots was really the epiphany for me," she says.

As someone who had coached hundreds of clients through the trading business she was familiar with how people's subconscious patterns could present roadblocks to success. This time she was seeing it in her own life.

She identified two subconscious beliefs about money were showing up in her life: that it was "easy come, easy go" and "that money doesn't make you happy".

As she applied techniques to "overwrite" them with different beliefs she says her cliff-edge financial situation changed quite quickly and she saw new opportunities.

The company began to offer a coaching service rather than just seminars. "It just went completely gangbusters," says Cairns.

They also asked their investors if they would give them longer to pay back the debt and most agreed. 

Despite economic conditions that saw many of their competitors go out of business, their company went from being millions of dollars in debt to being debt free over the space of four years and their annual revenues almost tripled.

The experience changed irrevocably her relationship with money. "All my life I had strived really hard at work and had put a huge amount of effort into everything that I was doing," she says.

But she felt as though she wasn't getting anywhere different. "I think it's when we go in and really examine our unconscious patterns and achieve some change on that level then we really get to a new place."