Better to seek advice early if you run into financial trouble, experts say
There is a deep stigma associated with money problems. They drive many people to hide their situations. People need to know at what point they really are in trouble so they can get help.
'Don't wait until the loan sharks are knocking on your door,' advises Pinky Yung, a social worker handling debt and financial services at Caritas Family Crisis Support Centre.
If left too long, people tend to borrow more money to cover the old debt, digging themselves into a deeper hole. 'On top of credit card interest rates of 30 per cent to 35 per cent, some financial companies give cards to customers at 40 per cent to 45 per cent, and desperate people borrow money at these rates to cover existing debt,' she says.
Inability to pay credit cards or loans are currently the most common problem, she says, but often the underlying issue is gambling, overspending or addiction - afflictions that are driven by Hong Kong's long working hours and high stress.
'They want to make themselves happy with gambling, or overspending, and next thing they know they're in debt,' Yung says.
Most people have three options: go to a social worker or counsellor; go to a lawyer to apply for bankruptcy; or ask the bank to restructure the debt. For restructuring, you must go early, Yung says, adding: 'By the time you have gone to a loan shark or illegal lender, it's very hard to resolve.'
Debt is almost always a family affair. 'It's usually the breadwinner in debt, and with restructuring repayment, he or she may not have enough left to support the family.' The spouse may not even know of the problem. This has a knock-on effect on children, causing conflict and family breakdown. 'Early assessment and intervention is the answer, so come to us to discuss financial problems at the earliest opportunity,' Yung says.
After seeing a counsellor or social worker for an assessment (details below) one option is bank restructuring. An alternative is to go to a lawyer to arrange an individual voluntary arrangement (IVA) proposal. (See main story.)
An IVA is a formal procedure under the Bankruptcy Ordinance providing an alternative to bankruptcy. A debtor makes a repayment proposal to the court and the creditors. If approved, it is legally binding.
But Desmond Liaw, senior associate at law firm Reed Smith Richards Butler, cautions that you're at the mercy of the creditor in this. To agree, they must think they'll get a better return than bankruptcy. Repayment schedules may also be steep.
If you are in financial trouble, the following resources may prove useful:
Official Receiver's Office
The FAQ section explains in detail the procedure and costs of applying for both an IVA and filing a petition for bankruptcy.
Hong Kong Association of Banks
E-mail at firstname.lastname@example.org
This non-profit industry body regulates the practice of debt collection by banks. Debt collectors have a right to pursue their money, but they must operate within guidelines. The HKAB can tell you exactly what these boundaries are. And if a debt collector is crossing the line, a call to the association will probably end any abuse within a half hour.
For advice, call:
Caritas Family Crisis Support Centre
Tel: 2383 2122
Christian Family Service Centre
Tel: 2701 5592
The Tung Wah Group of Hospitals Healthy Budgeting Family Debt Counselling Centre
Tel: 2548 0803