You may think that bankruptcy is the only option left for someone in your circumstances. Bankruptcy is intended to give individual debtors a fresh start, however there may be serious consequences and long-lasting effects for you. You should therefore consider whether an appropriate alternative to bankruptcy may be available to you before you make any decision.
What are the alternatives to avoid bankruptcy?
Depending on your circumstances, as an alternative to bankruptcy you may:
- Seek to negotiate an informal arrangement with your creditors
- Propose a Debt Agreement if your assets, liabilities and income are below certain thresholds.
- Propose a Personal Insolvency Agreement.
If you require further information regarding these alternatives contact Cactus Consulting for a free, no-obligation consultation.
How do I become bankrupt?
You can voluntarily become bankrupt, or you can be made bankrupt by a creditor (or creditors) owed over $5,000.
You may voluntarily become bankrupt by completing a Debtor’s Petition and a Statement of Affairs (which is a form setting out the person’s assets, creditors and other information) and submitting these documents to the Australian Financial Security Authority.
What are the benefits of bankruptcy?
Bankruptcy provides for the discharge from most, if not all, of your unsecured debts, which allows you to make a fresh start without the burden of debts which you cannot pay.
Will my assets be sold in bankruptcy?
In bankruptcy all of your assets that are “divisible property” will be sold or realised by the bankruptcy trustee. Your divisible property may include your:
- House or land
- Shares and other investments
- Boats and motor vehicles (if valued above a certain amount)
- Cash in your bank accounts
- Any tax refunds for periods prior to your bankruptcy
- Inheritance or gambling winnings you receive before or during your bankruptcy
What assets can I keep?
In bankruptcy you can keep certain assets, which generally includes:
- Household furniture, belongings and other personal items
- Tools of trade up to a certain value
- A motor vehicle up to a certain value
You can find the values of certain assets which you can retain here.
What debts are included in my bankruptcy?
Most debts are included in a person’s bankruptcy, including personal loans, credit card debts, debts owed to trade creditors and debts owed to the ATO. There are however, some debts that are not included in bankruptcy. Debts which will not be discharged by your bankruptcy include:
- HECS or HELP debts
- Debts due under a child support maintenance agreement
- Court imposed penalties and fines
- Unliquidated damages claims from accidents
How long does bankruptcy last?
Bankruptcy will generally last for three years from the date a bankrupt files a Statement of Affairs (which is a form setting out a bankrupt’s assets, creditors and other information).
Can the period of bankruptcy be extended?
The period of a bankrupt’s bankruptcy can be extended so that the period of bankruptcy can be up to eight years. This will most commonly occur in circumstances where a bankrupt has failed to pay income contributions to his or her trustee, or the bankrupt has failed to provide information or documentation requested by the trustee.
What are income contributions?
A bankrupt is required to pay income contributions to his or her trustee if the bankrupt’s net (after tax) income exceeds a certain amount. The amount of after tax income which a bankrupt is able to earn prior to being liable to pay income contributions increases if a bankrupt has children or other people who are financially dependent on the bankrupt for support. The amount of income that a bankrupt is able to earn before being liable for more contributions is available at the following link.
Generally a bankrupt will be able to pay income contributions by weekly, fortnightly or monthly instalments.
Can a bankrupt trade a business?
A bankrupt is able to trade a business, subject to certain exceptions, including:
- The business must be traded in the bankrupt’s name.
- The bankrupt must maintain suitable and accurate records for the business.
- A bankrupt is not entitled to incur credit over a certain statutory amount available at the following link, without notifying the person who is providing credit that they are an undischarged bankrupt.
Ready for assistance filing for bankruptcy? Got further questions? Well call us on 1300 4 222 887 today for a free and confidential discussion.