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What is bankruptcy?
Bankruptcy is a legal process where a person has been assessed as not being able to pay their debts.
When a person becomes bankrupt, a bankruptcy trustee is appointed to manage the bankruptcy. A bankruptcy trustee in bankruptcy can be either the Official Trustee in bankruptcy as appointed by the Australian Financial Security Authority (AFSA) or a registered trustee. A trustee can claim and sell some of a bankrupt's possessions or assets. This may include real estate and personal property situated in Australia or elsewhere, with some exceptions. For some people, bankruptcy may be the best way to handle their debts.
What are the advantages of bankruptcy?
- wipes the slate clean and gives people a fresh start with their money
- some of the bankrupt's property comes under the protection of the law and cannot be taken away to help pay their debts
- demands from creditors generally stop once the person becomes bankrupt
- all social security pensions and benefits are protected.
What are the disadvantages of bankruptcy?
- a bankrupt's financial affairs and dealings are subject to thorough investigation
- there is a set amountthe bankrupt must contribute to their debts from their income
- bankrupts will lose most of their valuable property
- hire purchase companies may repossess the bankrupt's goods under bill of sale unless monthly payments are maintained
- any savings or valuable goods acquired during the bankruptcy may be taken away
- a bankrupt must not get goods and services on credit for more than a set amount, without disclosing that they are bankrupt. To do so is a criminal offence
- an undischarged bankrupt has a duty to disclose the fact they are bankrupt if they trade under any business or assumed name
- a bankrupt will still be liable for any court fines, child support, maintenance or HECS/HELP debts
- discharged bankrupts may have difficulty in obtaining unsecured credit in the future
- fees are charged by the trustee in bankruptcy and paid from the sale of property
- information on people who are bankrupt is available on the National Personal Insolvency Index, which is a public record
- may affect a persons ability to travel.
Go to Consequences of bankruptcy on AFSA for more information.
What property is protected from bankruptcy?
- personal items
- household property of a reasonable value
- tools of trade to a set amount
- money received during bankruptcy such as gifts, compensation and superannuation payments
- damages and compensation payments
- vehicles - the value of the vehicle (car or motorbike) minus the sum owing under finance cannot be more than a set amount.
What are a bankrupt's responsibilities?
All bankrupts have certain responsibilities to their trustee during their bankruptcy. These include:
- supplying all relevant information to their trustee
- informing their trustee of any change of name, address, employment, income or inheritance
- making contributions from their income when a trustee issues an assessment
- handing over their passport to their trustee and obtaining the permission of the Federal Court to travel overseas
- disclosing their undischarged bankrupt status if applying for credit in excess of a set amount
- handing over all relevant books and documents if a business is bankrupt
- ceasing to continue to be a director of a company or involved in the management unless first obtaining the court's permission
- not trading under a business or assumed name without disclosing their undischarged bankrupt status.
What can creditors do?
If a person is declared bankrupt, the trustee will send a letter to each of the creditors. Unsecured creditors can not take any further action to recover their debts other than to lodge a claim with the bankrupt's trustee. Secured creditors are entitled to take action to repossess property or goods if a debtor fails to make the required repayments. Any debts which a bankrupt incurs after he or she becomes bankrupt cannot be claimed in their bankruptcy. Creditors can take the usual legal actions to recover these debts.
How do I apply for bankruptcy?
You can apply for bankruptcy if you meet these 2 requirements:
- you cannot pay your debts when they are due
- you are present in Australia or have a residential or business connection to Australia.
There is no minimum or maximum amount of debt or income you need to be eligible for bankruptcy and there is no fee to apply to become bankrupt. if you are currently in a debt agreement and want to apply for bankruptcy, contact your administrator. You must terminate your debt agreement first before applying.
What is annulment?
An annulment is the cancellation of a bankruptcy. You can have your bankruptcy annulled if you:
- Pay your debts in full
- arrange a "composition", which is where your creditors (the person/company you owe money to) accept less than payment in full of what you owe them
- prove in court that you should not have become bankrupt. For example - someone stole your identity.
When does the bankruptcy end?
You don't need to apply to be discharged from bankruptcy. This is an automatic process and it will end 3 years and 1 day after the bankruptcy started.
What else do I need to know?
For more information on bankruptcy and forms to use go to the AFSA website.
- Bankruptcy Act 1966 (Cth)