What is bankruptcy?
According to the Australian Financial Security Authority bankruptcy is a legal process where you as an individual is declared unable to pay your debts. However, if you find yourself in a position of inability to pay your debts there are a number of options available.
What happens when you have too much debt?
Under the Bankruptcy Act 1966 there are four major options available to you:
1. Declaration of intention to present a debtor’s petition (DOI)
- This is a temporary option to allow you time from your creditors to seek help
2. Debt agreements
- These are binding agreements which set out amounts you can afford to pay to the creditors
- The period of bankruptcy where a trustee manages your bankruptcy. This period ends after 3 years and 1 day
4. Personal insolvency agreement
- This is an agreement between you and the creditors to pay an agreed lump sum or in instalments
What happens when you become bankrupt?
When you become bankrupt you relinquish control of your assets to a trustee who then has the responsibility of managing administration of the bankrupt estate and ensures that the bankrupt complies with their obligations.
Under this agreement, the trustee has the capacity to take physical control and possession of the assets, including the ability to sell them. This includes cars, houses and other valuable items.
However, under the act a number of items are considered “protected assets which can include household furniture, items necessary for employment and assets held in trusts.
Further to this, if the income of the bankrupt exceeds a threshold established dependant on calculations factoring in dependants, then the bankrupt is required to pay income contributions. If this is not followed, then the trustee has the ability to issue a garnishee notice which will remove the funds directly from the account.
During this period of bankruptcy there are many rules that the individual is obliged to follow including not being allowed to deal with property that is now under ownership of the trustee nor leave the country without permission from the trustee.
What are the consequences of bankruptcy?
The bankruptcy can end via two ways, either a discharge where the bankruptcy has finished and no longer bankrupt or a cancellation of bankruptcy via Annulment if they’re paid out in full.
At the end of this period the bankrupt’s name will appear on the National Personal Insolvency Index forever as a discharged bankrupt.
How can we help?
Bankruptcy can be a very difficult minefield to navigate, with many rules and regulations surrounding each individual issue. Please contact us for more information and advice surrounding personal insolvency or bankruptcy.
Source: Australian Financial Security Authority (AFSA)