September 18, 2019
Bankruptcy in Australia
Bankruptcy is a process whereby a person is legally declared, unable to service his/her debts. This releases the individual from almost all the debts he owes. The debtor can file for bankruptcy, and it can be filed voluntarily (debtors petition), or the creditors can force you into bankruptcy when they apply in court (creditors petition). When a person has a debt of any amount that he/she cannot pay, they are eligible to apply for bankruptcy. If you voluntarily apply for bankruptcy, and the Australian Financial Security Authority (AFSA) accepts your application, they appoint a trustee who manages your financial affairs. The trustee works with you (the debtor) to establish and manage your financial affairs by:
- Informing your creditors about the bankruptcy situation,
- Contacting your creditors to assess their claims,
- Taking control of part of your income to repay some of your creditors.
- Selling your assets, such as land, houses or vehicles above a specific value and,
- Trying to reacquire any assets you might have transferred or sold shortly before bankruptcy.
Advantages of bankruptcy
- All debts that are eligible for bankruptcy are cleared upon the end of bankruptcy duration (usually three years and one day). The eligible debts include unsecured debts, such as utility bills, medical and legal bills, outstanding rent, credit cards, personal lines of credit, store charge cards, payday loans, and unsecured personal loans.
- Creditors cease all debt collection processes and legal action
- Income up to a certain amount threshold is protected
- You can operate a sole proprietorship (sole trader) business.
- Creditors must accept the bankruptcy, and they cannot reconsider this decision at a later date.
- After five years, the bankruptcy record is removed from your credit history.
- Some of your property is protected by bankruptcy, for instance;
- Tools of a trade valued up to a certain amount
- Sentimental valued items such as trophies, medals, or your wedding ring
- Personal injury compensation, superannuation, and life insurance policies
- A vehicle that is worth less than a certain amount of money
- Ordinary household items like home appliances, clothes, and reasonably valued furniture
Disadvantages of bankruptcy
- The period of bankruptcy lasts for three years, with the possibility of an eight-year extension by your trustee if you fail to comply.
- The bankruptcy record remains in your credit history for five years (or longer). This means you are unlikely to access loans from mainstream financiers during this period.
- The bankruptcy record remains in the NPII (National Personal Insolvency Index) forever
- There are non-eligible debts which are not exempted from bankruptcy. For example, secured loans (car loans and mortgages), government education debts, penalties, outstanding child support payments, debts incurred by fraud, fines, and penalties.
- Your trustee has total control of any non-protected property which can seize and sell if need be. Examples of non-protected property include;
- Real estate assets such as land and houses
- Inheritance, winnings, and tax refunds
- Money in bank accounts over a certain threshold
- Vehicles worth more than a certain amount
- Personal items like luxury electronic items, jewellery, antiques, and
- Significantly valued artworks
- The trustee manages any your overseas travels during the bankruptcy period.
- Certain professions such as tax agents, accountants, real estate agents, gaming room attendants, and finance brokers are restricted if you become bankrupt.
- You cannot be a company director or manager during this period.
For more comprehensive information, NR Consulting offer bankruptcy help in Brisbane.