Bankruptcy is a legal process where an individual is declared unable to pay their debts as and when they fall due.
Bankruptcy can either result voluntarily or via a normal court order.A person voluntarily filing for bankruptcy files a Debtor’s Petition with the Official Receiver with AFSA and is given the opportunity to appoint a private trustee, such as Mr Bill Karageozis at McLeod and Partners, or the Official Trustee.
On the other hand, creditors can petition the court to make someone bankrupt who cannot pay their debts of over $5000 and has committed an act of bankruptcy outlined in the Bankruptcy Act 1966 (Cth). In this scenario the creditor may elect to have the court appoint a private trustee to administer the bankrupt’s estate or the Official Trustee.
Outcomes of bankruptcy encompass varied consequences.
Once bankrupt, the person is released from almost all of their debts and control of assets is relinquished to a trustee who then has the responsibility of managing the bankrupt estate and ensures that the bankrupt complies with their obligations. It is also crucial that within 14 days of being notified of their bankruptcy, or submitting a Debtor’s Petition, a Statement of Affairs must be lodged. Otherwise they run the risk of being bankrup’t for an extended period.
The trustee has the capacity to take physical control and possession of the valuable assets, including the ability to sell them. This can include cars, houses and other valuable items. 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 to the trustee If this is not followed, then the trustee has the ability to issue a garnishee notice which will seize the funds directly from the Bankrupt’s control.
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.
The bankruptcy can end via two ways.
The first is a discharge where the bankruptcy has finished three years after the Statement of Affairs was filed or secondly finalisation of bankruptcy via Annulment if they’re paid out in full. On the contrary, it can be extended by the Trustee to either 5 or 8 years if certain conditions are not satisfied.
At the end of this period the bankrupt’s name will appear on the National Personal Insolvency Index forever as a discharged bankrupt. However this differs for credit reporting agencies.
Bankruptcy can be a very difficult minefield to navigate, with many rules and regulations surrounding each individual issue. Please contact McLeod and Partners today for more information and advice surrounding bankruptcy.