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Bankruptcy

Bankruptcy is the legal process by which an individual is declared bankrupt by the Court because they are insolvent.

It removes the pressure of unmanageable debt whilst also aiming to provide a fair and reasonable outcome for your creditors.  The process involves appointing a trustee, to whom you will have to supply all the necessary information including financial records and bank statements.  During this process, you will be protected from any legal action by your creditors.

Am I eligible for bankruptcy?

You can apply for bankruptcy if you are:

  • unable to pay your debts when they are due (you are insolvent); and
  • present in Australia or have a residential or business connection to Australia.

Importantly, any amount of debt can qualify you for bankruptcy.

How do you become bankrupt?

You can become bankrupt by:

  • personally lodging a Debtor’s Petition and a Statement of Affairs to the Official Receiver (voluntary bankruptcy); or
  • one of your creditors lodging a Creditor’s Petition to the Federal Court to obtain a sequestration order against your estate (involuntary bankruptcy).

What are the advantages of bankruptcy?

Your unpaid unsecured debts will be written off at the end of your bankruptcy period.  Creditors will no longer be able to pursue you for payment and must deal with the trustee.  You can keep your necessary personal effects such as clothing, bedding and furniture.

What are the consequences of bankruptcy?

Bankruptcy may affect you in the following ways:

  • Having to make compulsory payments to the trustee of your estate should you earn over a set amount during and after your bankruptcy.
  • Restricting your ability to travel overseas.
  • Having your bankruptcy status appear on your credit record and your name in the National Personal Insolvency Index.
  • Restricting your ability to obtain future loans and credit.
  • Having some of your assets sold, including your house and property.
  • Not being allowed to deal with your assets that belong to the trustee in the bankruptcy period.
  • Not being able to act as a company officer.
  • Not being able to trade under a registered business name without advising people of your bankruptcy status.
  • The need to continue paying child support, Centrelink debts, higher education debts and any court fines, where applicable.

How long does bankruptcy last?

Bankruptcy usually lasts for three years and one day.  This period is calculated from:

  • the date your bankruptcy application is accepted by the Australian Financial Security Authority for voluntary bankruptcy; or
  • the date your Statement of Affairs is filed for an involuntary bankruptcy.  In some cases, the trustee can lodge an objection to extend the bankruptcy period for up to eight years.

Are there alternatives to declaring bankruptcy?

If you are insolvent (unable to pay your debts as they fall due) but still have a regular income and can make some payments towards your debts, then there are other options you can consider before applying for bankruptcy, including:

  • making a declaration of intent to present a debtor’s petition, which provides you with temporary relief from being pursued by creditors while you seek help and decide how to proceed;
  • applying for hardship with each of your creditors, who may grant you certain temporary reprieves; or
  • proposing a government-regulated repayment plan, also known as a Debt Agreement or a Personal Insolvency Agreement.  These agreements do not carry all of the negative consequences of bankruptcy.

What happens if a person in bankruptcy continues to generate income?

You can still earn an income (subject to compelled contributions to creditors – through the trustee – should your income exceed a specific threshold).


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