A period of bankruptcy can often cause instability and stress to those involved when you have been declared unable to pay your debts. Usually, there are two ways out of bankruptcy, either a discharge where the bankruptcy has finished it’s 3 year course and no objections to discharge have been recorded or a cancellation of bankruptcy via annulment.
This article will focus on annulments of bankruptcy and some of the issues surrounding it.
You can finalise your bankruptcy via annulment in three ways:
- Pay debts in full
- This encompasses interest on the debt, realisations charges and other expenses incurred by the trustee
- Arrange a composition
- An agreement accepted by creditors for a payment less than the full amount
- Take it to court
- Try to successfully challenge the fact that you should not have become bankrupt. This option can be difficult and requires legal advice to be sought.
The most commonly used option is that of a composition in which an offer is made to creditors to repay a portion of your debts, in turn annulling the bankruptcy. This offer can be made with what you can afford, for example using assets that your trustee can’t claim including protected assets or having a relative offer to put forward funds.
The Australian Financial Security Authority has outlined the steps to making a composition below:
- Contact your creditors to see what sort of offer they are willing to accept. This can help you decide whether you want to submit a formal offer.
- Contact your trustee to discuss the requirements for making an offer.
- Lodge your written and signed offer with your trustee. In your offer:
- set out the terms
- allow for payment of the trustee’s fees and expenses
- allow for payment of the realisation charge.
Essentially, these arrangements are designed to both benefit creditors and the bankrupt. Creditors can generally benefit from an increased dividend via the annulment compared to the continuation of bankruptcy. Given that most of these proposals are made some way into the bankruptcy period, it can give the creditors a good idea of the financially viability of both options. Similarly, the bankrupt benefits by being released from the legal restrictions of bankruptcy and will then be recognized on the National Personal Insolvency Index as annulled.
The most important aspect of bankruptcy is communication and education. Leading Queensland insolvency experts, Jonathan Paul McLeod and Bill Karageozis recommend seeking help and information as early as possible. Please feel free to contact us today at McLeod and Partners for a confidential discussion of bankruptcy or any other concerns you may have.
Source: Australian Financial Security Authority (AFSA)