1.1 What is bankruptcy?
Bankruptcy is a legal process which declares that a person is unable to pay their debts. It can absolve them of most debts and allow the person to have a fresh start. It can be seen as an exchange of a person’s assets and financial control for legal protection from the person’s creditors.
There are two ways to enter bankruptcy. You can either:
(a) enter voluntary bankruptcy; or
(b) someone you owe money to (a creditor) can make you bankrupt through a court process.
1.2 Who manages my bankruptcy?
When you become bankrupt, a trustee is appointed to manage your bankruptcy. This can be either:
(a) the Official Trustee in Bankruptcy of the Australian Financial Security Authority (AFSA); or
(b) you can nominate a registered trustee of your choice.
The trustee’s fees are generally paid out of the funds recovered in the administration of the bankruptcy.
1.3 How long does bankruptcy last?
The period of bankruptcy usually lasts for three years and one day.
This period can be extended by the trustee for up to 5 or 8 years.
AFSA may assist in determining when your bankruptcy ends, as well as discussing with your Official Trustee.
1.4 How do I confirm if someone is bankrupt?
The Bankruptcy Register Search (BRS) is an online service that allows access to personal insolvency information. For the cost of $15, a search can be conducted on the register to find information about a person’s financial position.
Do I have to appear in Court if I am bankrupt?
You are not necessarily required to make court appearances for becoming bankrupt.
Depending on your circumstances, you may be required to attend an examination before a Court if you have failed to meet your obligations as a bankrupt.
1.5 Is my bankruptcy advertised?
Your bankruptcy is generally not advertised. However, A bankrupt is listed on the National Personal Insolvency Index permanently, which can be searched by members of the public.
2.1 What happens to my assets?
An asset is anything of value that you possess, such as real estate, vehicles, cash or money in a bank account and tools.
During bankruptcy, your trustee may be able to claim and sell some of your assets. The proceeds from the sale of your assets can be used to repay the money that you owe to creditors.
2.2 What assets can I keep?
During bankruptcy, you are able to keep:
(a) ordinary household items;
(b) tools used to earn an income with a value of up to $3,800; and
(c) vehicle(s) with a value of up to $8,000.
It is important to note that any assets acquired during the period of bankruptcy will also vest in the trustee.
2.3 Will I lose my assets?
Under the Bankruptcy Act 1966, you cannot sell or deal with any of your assets that are not protected (protected assets are ordinary household items; tools and vehicles). The remainder of your assets vest in the trustee.
It is important to note that any assets acquired during the bankruptcy will also vest in the trustee.
2.4 Will I lose my car?
You can keep your vehicle that you use mainly for transport with a value of up to $8,000.
2.5 Will I lose my house?
A house is considered property and thus an asset. Property may include a house, apartment, land, farm or business premises. In bankruptcy, the trustee becomes the owner of the share of any house or property you own. The trustee has control over your property and can sell it to help pay your debts.
2.6 Will I lose my income?
If you earn over a certain amount, half of what you earn above this threshold can be used to pay off your bankruptcy. This threshold amount is updated twice a year and varies depending on several factors such as dependant persons, income tax payable, fringe benefits and child support payments.
There are many misconceptions surrounding income and what happens to it in bankruptcy. There are various jobs that are the responsibility of the trustee in managing a bankrupt’s income. If you have any questions or concerns, do not hesitate to contact our office to discuss your matter.
2.7 What happens to assets that have not been sold by the trustee by the discharge date?
Assets that have not been sold continue to be controlled by the trustee, despite the bankruptcy being discharged.
2.8 Can I avoid bankruptcy by accessing my superannuation to pay my creditors?
Superannuation can be accessed to assist in severe financial hardship, however only in some instances. Contact your superannuation fund to find out whether you are eligible to access your superannuation.
2.9 Can I keep my tax returns?
Tax refunds received from your income earned before the date of bankruptcy is regarded as an asset. Therefore, the tax refund amount vests in the trustee.
2.10 Do I still need to lodge a tax return if I am bankrupt?
Yes, you are still required to lodge a tax return if you are bankrupt.
2.11 What happens if I come into possession of money/assets of a high value?
If you come into possession of a large quantity of money or a valuable asset, such as receiving an inheritance of money, property or other assets; winning the lottery, or becoming the beneficiary of a deceased estate, and this significantly exceeds your unsecured debt, you may be in a position to end your bankruptcy.
Implications of Bankruptcy
3.1 How do I declare bankruptcy?
Essentially, there are two ways to declare bankruptcy, either voluntarily or by way of a creditor in whom you owe money to. Pursuant to section 55 of the Act, you may lodge a debtor’s petition in order to declare yourself bankrupt. You, in your capacity as a debtor, will be deemed bankrupt from the day the petition is accepted by the Official Receiver.
Alternatively, a creditor may lodge a creditor’s petition, simply applying to make you bankrupt due to debts owed and the inability to meet those debts. A creditor may apply for a bankruptcy notice once they have received a court judgment concerning the debts. This usually relates to two or more debts, as well as multiple creditors.
3.2 What happens when I become bankrupt?
A bankrupt is listed on the National Personal Insolvency Index permanently which can be searched by members of the public. A bankrupt will be required to disclose his or her bankruptcy to creditors if seeking credit over the prescribed limit, which is approximately $5,880.
A bankrupt will also have to disclose his or her bankruptcy if trading under a business name and according to section 206B of the Corporations Act 2001 (Cth), a bankrupt cannot manage a company without Court approval.
Bankruptcy may also affect your employment and your ability to hold specific licences, as well as obtain a security clearance. It is advised that, should you declare bankruptcy, you should confirm the conditions of your employment in regards to bankruptcy.
3.3 What are my options? Do I have other options aside from bankruptcy?
Bankruptcy is just one formal option available under the Bankruptcy Act[?] to manage your debt. Other formal options include six-month relief and a debt agreement.
A bankruptcy alternative is a Personal Insolvency Agreement (PIA). A PIA involves the appointment of a trustee to take control of your property and make an offer to your creditors. The offer may be to pay part or all of your debts by instalments or a lump sum. Entering a PIA may have a severe impact on you. It may affect your employment, ability to get credit and will appear on a public register permanently.
Additionally, a debt agreement (DA) is available pursuant to Part IX of the Act. It is an agreement between the debtor and his or her creditors to compromise by paying a percentage of the debts owed over a period of time.
3.4 What do I have to do when I become bankrupt?
When you are bankrupt:
(a) you must provide details of your debts, income and assets to your trustee.
(b) your trustee notifies your creditors that you’re bankrupt – this prevents most creditors from contacting you about your debt.
(c) your trustee can sell certain assets to help pay your debts.
(d) you may need to make compulsory payments if your income exceeds a set amount.
3.5 What are the consequences of bankruptcy? How will bankruptcy affect me?
You are automatically disqualified from managing corporations and cease to be a director, alternate director or secretary of a company unless you have been given leave by the Court to manage corporations.
Bankruptcy may affect your employment, entitlements to hold specific licences, ability to obtain clearances and the ability to travel internationally. You may be required to surrender your passport to the trustee.
3.6 What happens to my debts?
If you enter bankruptcy, you will find that most debts are covered. This means that you no longer have to repay them. In some cases, your trustee may sell your assets or use compulsory payments to help pay your debts. It is essential to confirm the types of debts owed and whom those debts are owed to.
Moreover, where it is determined the debts are secured or unsecured, this will assist in determining exactly what happens to those debts and how the debt is dealt with.
3.7 Will bankruptcy affect my partner’s assets?
There is the possibility that bankruptcy may affect your partner/spouse’s assets. For example, should your partner hold an asset such as a house where you have made monetary contributions to the house, you may hold an equitable interest in the property and hence may affect your partner’s asset.
However, bankruptcy will not affect your partner’s assets if the assets are registered/insured in the name of your partner, and you have no legal or equitable interest in the asset. You should confirm the status of the assets and your interests with a solicitor.
3.8 Will I lose my job?
Bankruptcy may also affect your employment and your ability to hold certain licences, as well as obtain a security clearance. It is advised that, should you declare bankruptcy, you should confirm the conditions of your employment in regards to bankruptcy.
3.9 Discharge from bankruptcy
A bankruptcy currently lasts three years pursuant to section 149 of the Act. A bankruptcy may end early however if an arrangement can be made to annul the bankruptcy.
A bankrupt may seek an annulment of the bankruptcy by making an arrangement with his or her creditors pursuant to section 73 of the Act. This will require the bankrupt to submit a proposal for consideration and the bankruptcy trustee to prepare a report to creditors and to hold a meeting of creditors for them to vote on the proposal.
A trustee may also apply to extend a bankruptcy by objecting to the bankrupt’s discharge pursuant to section 149A of the Act. The grounds upon which an objection may be based are set out in section 149D of the Act and amongst other things include voidable transactions and not providing information to the trustee when required, including disclosing income.