1. Is bankruptcy the right solution?
Try to avoid bankruptcy, explore all other options first. You should obtain a professional advice from financial counselors, lawyers, registered trustees, community advice centres or accountants.
There are alternatives to bankruptcy:
An Informal Agreement with Creditors
If you are employed and have an income, an agreement can be made between you and your creditors. This agreement would enable you to repay your debts over a specific period of time. As this is an informal agreement it is not binding and your creditors may change their minds, meaning they can demand again that you repay your debts in full. If you default on the payments, this agreement would become invalid as well.
A Formal Agreement or Personal Insolvency Agreement under Part X
An agreement under Part X of the Bankruptcy Act which is binding on all creditors may be a correct solution for you. To be able to proceed with this option you should have either a steady income, financial support from a family member, or assets. A registered trustee should be consulted if you decide to go ahead. Formal agreement will be registered on your credit file, but bankruptcy is avoided. You will be required to pay fees to registered trustee.
Cooling Off Period
You have a seven day “cooling off” period to change your mind in the case you have made a rushed decision. By signing a bankruptcy statement at the Insolvency & Trustee Service Australia you will be given a 7 day period to consider your financial position and seek advice. During this 7 days period your creditors cannot take further action to recover the money. During this period you would contact your creditors and try to renegotiate your debt with an affordable payment plan. You should also look for a financial advice and assistance from a professional. Bankruptcy information is also available from Insolvency & Trustee Service Australia (ITSA) or a registered trustee. There are alternatives to bankruptcy; you should discuss all of them with a consultant before you take any action. In some instances a free legal aid may be available to you. At the end of this 7 days period you are not obliged to become bankrupt.
2. How do I become bankrupt?
You can declare voluntary bankruptcy or your creditors can take action first and apply for your bankruptcy. If after exploring all alternative solutions you have decided on voluntary bankruptcy, you need to lodge a Debtor’s Petition and Statement of Affairs. A registered trustee or the Insolvency & Trustee Service Australia can help you with this process. You will need full contact details, and money amounts owed to each creditor. You must declare all debts (business and personal) for which you are personally liable. You must provide full details about following: your income, bank accounts, shares, any money owed to you and personal property (house, car, boats, etc). Failure to disclose property or concealment or unlawful disposal of property or any item of value results in severe penalties including imprisonment.
When you complete the Statement of Affairs, Debtor’s Petition and sign the acknowledgement that you have read and understood the Prescribed Information, you can post or deliver the above documents to ITSA. The Official Receiver in Bankruptcy will inform you that you have become bankrupt once your forms are accepted.
3. How long is bankruptcy for?
The period of a bankruptcy is for 3 years, however this period may be extended to 5 years in certain circumstances such as:
- if a bankrupt fails to disclose any beneficial interest in any property
- if a bankrupt continued to manage a corporation
- if a bankrupt fails to disclose to the trustee, a liability that existed at the date of bankruptcy
(Not all circumstances are mentioned here)
To 8 years from the date of bankruptcy:
- if a bankrupt fails to provide details of property and income when requested
- if a bankrupt deliberately provided false or misleading information to the trustee
- if a bankrupt fails to disclose detail of income or expected income
(Not all circumstances are mentioned here)
4. What happens to my debts during bankruptcy period?
After declaring bankruptcy you are discharged from most of your debts. If sufficient funds are recovered, your trustee in bankruptcy will pay any dividends to your creditors.
Unsecured Debts
Credit cards and personal loans are unsecured debts. In this instance creditors generally do not have the right to take back the items you purchased and they cannot take further action to recover the debts.
Secured Debts
Any debt secured by an asset is a secured debt. Secured creditor can take and sell the asset if you default on your payments. Houses, cars, boats can be repossessed and sold. If the creditors did not recover the full amount of money you owe they can lodge a claim for any loss. You can negotiate with your secured creditors and continue to use these assets if you can make regular payments. The trustee may sell the assets if their value is greater than the amount you owe to the creditors.
5. Which debts are not covered by bankruptcy?
Maintenance payments and Child Support, Centrelink, HECS (Higher Education Contribution Scheme) Student Supplement Loans, fines for breaches of the law, traffic fines and debts arising from fraud.
6. What happens if I have a Guarantor for my loan?
In this case the creditor is entitled to lodge a claim to the guarantor. If your guarantor pays your debt, the guarantor becomes a creditor and can lodge a claim against you.
7. What happens if a loan is in 2 names and I declare myself bankrupt?
The second person is liable for the full amount on all debts incurred in joint names.
8. 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.
9. Once I have become bankrupt can creditors still demand money from me?
No. The Bankruptcy Act prevents creditors to demand the money to be repaid. However, if you have made any arrangements with your secured creditors and you default on your payments, these creditors can force repossession of the assets in question. If you have any questions notify your trustee. In a case of physical harassment contact the police.
10. What is the minimum amount required to declare bankruptcy?
For voluntary bankruptcy any amount. You must owe at least $2,000 to a creditor for forced bankruptcy.
11. Who can help me with my bankruptcy process?
A registered trustee or ITSA. Both will charge you fees for their services.
12. Does bankruptcy prevents me from being employed?
You can work while bankrupt. However, certain restrictions for particular trades or professions may be imposed by their professional associations or licensing authorities. If you are a member of a professional association or you have a trading licence issued by a licensing authority you should contact them in regards to any issues or conflicts with your profession and being bankrupt. If you do not owe your employer any money, your employer is usually not informed about your bankruptcy.
13. Will I lose my assets?
You can keep some of your assets up to a certain value. All other valuable assets can be sold to recover the money you owe to your creditors. Assets include anything of value such as: lottery wins, prizes of value, money in bank accounts, stocks and shares, antiques, your interest in the family home, land, your part as beneficiary of a deceased estate belongs to the trustee. Some assets are protected by the Bankruptcy Act such as: basic household furniture, personal effects, tools of trade (limited value), life insurance, superannuation policies, car, motor bike (limited value).
14. What happens to my car?
If you own your car (primary mean of transport) outright and it is valued at $6,500 or less it is protected by the Bankruptcy Act. If the value of your car is more than $6,500 the trustee can sell it give you back the $6,500 (prescribed amount). (Current at June 2009) If the car has two owners the prescribed amount is doubled. If your car is still under a loan, you can make arrangements with the lender and keep your car as long you continue with your loan repayments.
15. What happens to my house?
If the house belongs to you outright or you have a part equity or interest the trustee may sell your house or your part of the house. If the house is jointly owned the trustee may sell your part of the house to a non-bankrupt joint owner. A bank can sell your house as well if you cannot make the mortgage repayments.