DECLARING BANKRUPTCY IN AUSTRALIA In Australia, if you are unable to pay your
debts, and your attempts to come to an agreement with your creditors about repayment have failed,
then you may be faced with the prospect of declaring bankruptcy. Declaring yourself bankrupt
involves having a Trustee appointed to take control of your assets and income so that
they can pay down your debts and discharge them.
Before you consider declaring bankruptcy, you need to understand the consequences, as
it will have serious repercussions for your future. An understanding of the bankruptcy
laws, along with expert legal advice, will allow you to make an informed decision about
your financial situation.
You can become bankrupt either by declaring bankruptcy yourself through what is known as a
‘debtor’s petition’, or by order of the Federal Court following an application by one of your creditors, known
as a ‘creditor’s petition’. If you would like to enter into bankruptcy
voluntarily by Debtor’s Petition, you need to lodge an application with the Australian
Financial Services Authority or AFSA. You will also need to lodge a financial statement
and sign to acknowledge that you have read the prescribed information on the rear of
the form. The forms must be lodged within 28 days of signing, and once they are lodged
they cannot be withdrawn. You can find the forms on the AFSA website.
Any creditor who is owed $5000 or more and is unable to reach agreement with
you regarding repayment of the debt can apply to the Federal Court for a sequestration order.
You will be notified of the impending court hearing and have an opportunity to object
to the proceedings. The Court will issue the order where the creditor
can show that you have committed an act of bankruptcy. The most common act of bankruptcy
is a failure to comply with a bankruptcy notice, which is issued by the AFSA at the request
of the creditor, demanding payment of the debt.
Once a sequestration order is made you are officially bankrupt. You must provide the
AFSA with a statement of affairs within 14 days of the order. You will find the relevant
forms on the AFSA website. Further information about the court proceedings can be found on
the website for the Federal Court. Once the AFSA has received your statement
of affairs (either by debtor’s or creditor’s petition) your bankruptcy Trustee will begin
investigating your financial affairs. They will notify your creditors that you have been
declared bankrupt. The Trustee will again notify your creditors once they have determined
how best to deal with your debts. The AFSA will appoint a Trustee to manage
your bankruptcy. If you have voluntarily elected bankruptcy, you can apply to have your own
registered Trustee appointed and will need to submit a Trustee Consent to Act Declaration
along with your bankruptcy application. The AFSA may also appoint a registered Trustee
following a request from your creditors. Your creditors also have the power to remove and
replace your Trustee. Most of your assets will vest in your Trustee
once you are declared bankrupt so that they can sell them to pay down your debts. Certain
assets are dealt with in a specific way, such as those over which mortgagees hold a security.
Some assets are exempt altogether, such as personal household items, tools up to a certain
value which are required for work, a car up to a certain value, sentimental trophies,
medals and awards, life insurance policies, and funds in superannuation.
You can earn an income during bankruptcy but only up to a certain amount. If you earn above
the threshold, you will be required to pay to your Trustee half of the amount you earn
in excess of the threshold. Your Trustee will assess your expenses, based upon your particular
circumstances and the number of dependants you support, and will issue you with an assessment
for the amount you need to pay for the year. You will generally be discharged from bankruptcy
after 3 years and 1 day of submitting your application to the AFSA. Where you are bankrupt
as the result of a creditor’s petition you will be discharged 3 years and 1 day after
you submit your statement of affairs. If you fail to cooperate with your Trustee, they
may seek to extend the period of bankruptcy to 5 or even 8 years.
While your Trustee attempts to satisfy the majority of your creditors, you will still
be liable to pay certain debts both during and after your bankruptcy. This includes child
support payments, HECS or HELP fees, court fines, any amounts acquired through fraud,
and payments to secured creditors such as a mortgagee.
A record of your bankruptcy will be kept on the National Personal Insolvency Index which
is accessible to the public. Credit reporting agencies may also keep a record of your bankruptcy
for 5 years or more. Bankruptcy carries with it significant ongoing
consequences. For example, you are not able to act as a director of a company. If you
open a new business, you must inform creditors that you are bankrupt. You cannot travel overseas
without your Trustee’s permission. Your credit rating will be affected. You cannot
own any assets over the threshold value, and some debts will continue through bankruptcy
and beyond. Declaring bankruptcy is not a process to be
taken lightly. You should investigate your financial options thoroughly and seek legal
advice before deciding to declare yourself bankrupt, or if you are facing a Court-ordered
bankruptcy. If you or someone you know is facing bankruptcy,
Go To Court Lawyers operate a Legal Hotline on 1300 636 846 where you can talk directly
to a lawyer 7am - midnight, 7 days/week. Your call will be treated with the strictest confidentiality
and without judgement. The lawyer will assess your matter and recommend
a course of action. Should you need a lawyer, even if it is at
very short notice, the Legal Hotline staff will be able to arrange legal representation
for you. You can also request a call back via the website gotocourt.com.au and a lawyer
will call you back to assess your matter.