Bankruptcy
Bankruptcy
If you are in debt and are considering bankruptcy, you should know that bankruptcy is your last resort.
Bankruptcy may seem like an easy way out but it has very serious consequences for the rest of your life. Do not take this step without speaking to an experienced consultant.
Laws & procedures differ from country to country but are quite similar. You will need to check the exact specifics for your country/state.
Do I Need to Become Bankrupt?
With creditors pressing you for payment, bankruptcy may seem attractive, however it should be avoided if at all possible. Once bankrupt it is difficult and expensive to undo if you change your mind.
Before going bankrupt it is important to consider first speaking with an experienced consultant to see if there may be other options available to you.
How do I become Bankrupt In Australia?
You can become bankrupt voluntarily or you can become bankrupt on the actions of a creditor. Once you have spoken with an experienced consultant and after reviewing your options you have decided that voluntary bankruptcy is your best option, an experienced consultant will assist you in taking the necessary steps to become bankrupt.
Is there a minimum amount I need to owebefore I can go Bankrupt?
No. You can become bankrupt voluntarily owing any amount. A creditor cannot make you bankrupt unless the debt is $2,000 or more.
Who would handle my Bankruptcy?
ITSA will administer your estate if no registered trustee has provided a consent to act.
How long would I be Bankrupt?
The period of a bankruptcy is 3 years from the date a statement of affairs is filed. This period may be extended by an objection entered by the trustee.
What objections will extend my Bankruptcy?
To 5 years if a bankrupt:
- fails to disclose all debts and creditors
- fails to disclose any beneficial interest in any property
- fails to attend an interview or examination
- fails to notify a change of address
- fails to attend a creditors' meeting
- continues to manage a corporation
- engages in misleading conduct and amount exceeds $3000
- any transfer is void against the trustee because of Section 120/122 of the Bankruptcy Act 1966 (under valued transactions and preference payments)
To 8 years if a bankrupt:
- fails to pay mandatory contributions
- fails to provide details of property and income when requested
- fails to adequately explain how money was spent or assets were disposed of
- leaves Australia and does not return
- after the date of bankruptcy, the bankrupt deliberately provided false or misleading information to the trustee
- fails to return to Australia when requested
- any transfer is void against the trustee because of Section 121 of the Bankruptcy Act 1966 (transfers to defeat creditors)
- fails to disclose to the trustee, a liability that existed at the date of bankruptcy
- fails or refuses to sign a document when required
- intentionally failing to disclose to the trustee, a beneficial interest in a property
Note: The bases for an objection have altered from the 5th of May 2003 to include additional provisions. The changes will include 'special' provisions that cannot be overturned by a review of the Inspector-General.
Can I get an early discharge?
The early discharge provisions are not available for bankruptcies that are registered with the Official Receiver on or after the 5 May 2003.
What happens to my debts after Bankruptcy?
Unsecured creditors can take no further action against you to recover the debts. Your creditors may lodge claims in the bankruptcy.
Very important exceptions are fines for breaches of the law, debts arising from fraud, maintenance payments and debts due to the Department of Social Security.
Bankruptcy does not protect you from payment of these debts, and you are still liable for these. The other exceptions are secured creditors.
If you have unpaid accounts relating to essential services such as electricity, telephone or gas the supplier may require payment of the account or a bond for the service to be maintained.
Bankruptcy - Part 2
If you are in debt and are considering bankruptcy, you should know that bankruptcy is your last resort.
Bankruptcy has very serious consequences for the rest of your life. Do not take this step without speaking to an experienced consultant.
There are alternatives.
Secured Creditors, Hire Purchase, Leases
Creditors who hold security over your assets, (such as mortgages, bills of sale) and creditors for hire purchase or lease agreements, can recover the property and sell it. They are then entitled to lodge a claim for any loss incurred.
If you wish to continue to use these assets you will need to negotiate with the secured creditors and make regular payments to these creditors. If the value of the asset exceeds the amount required to finalize the agreement, during your bankruptcy, the trustee may sell the asset.
What happens if someone has guaranteed some of my debts?
Bankruptcy does not affect the rights of a creditor to claim under a guarantee. The creditor is entitled to recover payment from the guarantor. Once payment has been made, the guarantor steps in the shoes of the creditor and is able to lodge a claim in your bankruptcy for the debt paid.
What happens if someone else also signed the loan agreement. Will they have to pay if I declare myself Bankrupt?
Generally, yes. They will still have a liability for the total amount outstanding on all debts incurred in joint names.
What about debts incurred just before Bankruptcy?
If you are already insolvent, that is you cannot pay your debts, you should not incur further credit because if you become bankrupt it may be an offence under the Bankruptcy Act, and you may be prosecuted.
What happens to a debt I forgot about at the time of becoming Bankrupt?
If you forgot about a debt and remember it later, you should contact your trustee as soon as possible so that it may be added to your list of creditors. Failure to disclose debts could extend your bankruptcy to 5 years.
What about debts incurred after Bankruptcy?
If you become bankrupt you will be responsible for any debts incurred by you after bankruptcy.
Can a creditor still contact me insisting on payment once I have become Bankrupt?
No. The Bankruptcy Act prevents creditors from recovering money from you. An exception is a secured creditor with whom you have made arrangements to retain secured property.
If other creditors attempt to recover money from you, you should advise them of your bankruptcy, and if they continue to insist you should notify your trustee. If physical harassment occurs, you should contact the police.
Can I continue to use my credit cards after Bankruptcy?
It is a matter for the issuing bank or finance company as to whether they are prepared to continue to extend credit to you. All creditors at the date of bankruptcy should be listed on your Statement of Affairs and they will be notified of your bankruptcy.
It is an offence for you to incur credit over $3,973 (indexed) without disclosing to the person you are dealing with that you are an un discharged bankrupt.
I've had a car accident and the owner of the other car is pressing me for the costs of repairs. Will the debt be covered in Bankruptcy?
The debt is covered by bankruptcy only if a court judgment has been obtained, or you have admitted responsibility for the debt in writing or started paying for repairs prior to bankruptcy.
Will I lose my assets?
Once bankrupt you can no longer sell or deal with most of your assets or items of value, the exceptions being property protected under the Bankruptcy Act, as shown below. Only the trustee (ITSA or a registered trustee), or a secured creditor is able to do so. The trustee may dispose of your property for the benefit of creditors.
Assets include anything of value belonging to you at the date of bankruptcy together with assets acquired by you before your discharge including lottery wins, prizes of value etc. Your interest in the family home, land, money in bank accounts, vehicles exceeding $5,800 (indexed) in value, stocks and shares, antiques and other personal property of saleable value are all included. Any interest you have or acquire during bankruptcy as a beneficiary of a deceased estate belongs to the trustee.
Certain assets are protected by the Bankruptcy Act which means they cannot be sold by your trustee to pay creditors. The property protected by the Bankruptcy Act includes necessary household furniture, personal effects, limited tools of trade ($2,900 indexed), life insurance and superannuating policies and the primary means of transport up to $5,800 (indexed) (eg. car or motor bike).
Will I lose my house?
The trustee has to deal with any equity or interest you have in a property, for the benefit of your creditors. This may mean that the property has to be sold. If the property is jointly owned the trustee may consider selling his interest in your property to a non-bankrupt joint owner. Alternatively the joint owner provided they are not bankrupt may make an offer to purchase the trustees interest in the property.
A house property that is subject to a Defence Service Homes mortgage cannot be sold by the trustee without the approval of the Secretary of the Department of Veterans' Affairs.
A secured creditor could sell your property should you be unable to meet the mortgage repayments. Any shortfall will be a debt in your bankruptcy. If a surplus exists following sale, these monies will be paid to your trustee.
What if I have a car?
Once you become bankrupt, a vehicle which is used primarily as a means of transport (eg. car or motor bike), where your interest in the vehicle is less than $5,800 (indexed), is protected and can be retained by you. Where the interest in vehicle is valued at more than $5,800 (indexed) the trustee is required to sell, and give back to you the first $5,800 (indexed) of the proceeds of sale, to enable you to purchase a cheaper vehicle. If the vehicle is jointly owned by two bankrupts the relevant value is $11,600 (indexed).
Bankruptcy - Part 3
If you are in debt and are considering bankruptcy, you should know that bankruptcy is your last resort.
Bankruptcy has very serious consequences for the rest of your life. Do not take this step without speaking to an experienced consultant.
There are alternatives.
Can I have a bank/cheque account?
In most cases, yes, with the agreement of the financial institution. However, any substantial funds accumulated in a bank or similar account may vest in the trustee as an after-acquired asset.
How does Bankruptcy affect my employment?
Your bankruptcy may prevent you from undertaking employment in certain occupations or holding various licence's. We advise that you contact any professional bodies that you are registered with to ensure that there are no restrictions in continuing your employment in the event that you become bankrupt.
Your employer is not normally notified of your bankruptcy unless you owe him/her money or unless you have failed to pay compulsory contributions. It is still your responsibility to lodge taxation returns.
Do I have to make payments from my income to the Trustee?
One effect of bankruptcy is to take the pressure off you to make payments to most of your creditors. If you earn an income above an indexed statutory amount you are obliged to make regular payments or "contributions" to the trustee for the benefit of creditors. As contributions are enforceable at law if payments are not made voluntarily the trustee can issue a notice on your employer to garnishee your income.
It is an offence for an employer to dismiss a bankrupt because the trustee has issued the employer with a notice to forward payment from the bankrupt's wages. In order to assess the contribution payable, a bankrupt's income is broadly defined to include money received from their employer and any other benefit, for example the private use of a motor vehicle or subsidized housing. Other factors are then considered and include the amount of income tax payable, maintenance payable, and the number of your dependants whose separate income is less than $2,500 (indexed).
What if I leave my employment during Bankruptcy?
Should you terminate your employment during the period of your bankruptcy any lump sum termination payments due to you will be claimed by your trustee.
What happens to any assets that have not been sold by the trustee at the date of my discharge?
Your discharge from bankruptcy does not return those assets to you. The trustee may sell such assets after the date of your discharge.
Can my Bankruptcy be cancelled or annulled?
If you strive to pay your debts your bankruptcy may be annulled. Your trustee can issue a certificate of annulment when:-
- all your debts and costs of administration of your bankruptcy have been paid in full, or
- you make an offer of composition which is accepted by your creditors. A composition is an offer of a sum of money in full and final payment of your debts and it must be accepted by your creditors at a meeting and you must satisfy the terms of the offer; or
- through your trustee you enter into an arrangement with your creditors where you offer to pay a sum of money over a period of time which is accepted in full and final settlement of your debts when payment is completed.
- if you believe that you should never have been declared bankrupt, you can make an application to the Court (either Federal Court or the Federal Magistrates Court) to have your bankruptcy annulled under Section 153B. You will need to satisfy the Court that the bankruptcy should not have been made.
What are my rights and responsibilities once Bankrupt?
Borrowing Money
When you are borrowing money, purchasing goods on credit or incurring credit in any way exceeding $3,973 (indexed) it is an offence unless you inform the person you are dealing with that you are an un discharged bankrupt.
Operating a Business
You can still operate a business while bankrupt. If you trade under an assumed name or business name either as a sole trader or in partnership, you have to disclose to all, your bankrupt status. You cannot be a director of a company or be involved in its management without the permission of the Court. (Corporations Law).
Change of Name, Address and Overseas Travel
You are required to notify your trustee of all changes of name and/or address. If you wish to travel overseas you must obtain written approval of the trustee administering your estate.
When are the creditors notified of my bankruptcy?
The creditors are notified in writing as soon as possible by the trustee and informed of the assets and liabilities disclosed by you on your statement of affairs.
Is my Bankruptcy advertised?
Generally no, however your trustee may choose to do so.
Will I have to appear in Court?
Your trustee will decide whether there are matters requiring examination before the Official Receiver or the Court. If, for example, investigations into your affairs are needed you may be required to attend an examination or an interview.
Are there offences under Bankruptcy?
Yes. The most important are listed below:-
- Disposing of property before bankruptcy with intent to defeat your creditors
- failure to disclose assets
- the deliberate obtaining of credit when you know you cannot pay
- gambling and speculation which results in bankruptcy
- incurring debts during bankruptcy for over $3,973 (indexed) without disclosing that you are bankrupt
- operating a business under an assumed name, without advising your bankruptcy leaving Australia without the trustee's permission
