Declaring Bankruptcy in Australia

Find Out How Bankruptcy Could Help You.

If your debt is getting you down and you are finding it hard to manage, you are probably thinking about your options?  If you are considering bankruptcy there are a few things you need to know so you can make an informed choice.

First of all, bankruptcy is a serious step and has serious consequences.   In addition there are various alternative options to deal with unmanageable debts.   It is a good idea to learn as much as you can about the bankruptcy process and the consequences.  On this page you will find information on bankruptcy as well as frequently asked questions.

We recommend that you address your debt problems as soon as possible and start on the road to managing your debts.    If you are unsure what is best for you, before you make any decisions you can talk to Xdebt about your situation.  We will talk you through the options available to you and answer any questions you have.

If you decide that voluntary bankruptcy is your best option, Xdebt can help you make the necessary steps to become bankrupt.  We can help ensure bankruptcy is simple and quick so that you can get out of debt and get on with your life.

If you are already insolvent, that is you cannot pay your debts, you should not incur more credit because if you become bankrupt it may be an offense under the Bankruptcy Act, and you may be prosecuted.

What does bankruptcy mean for me?

Couple Considering BankruptcyWhen you feel you are unable to pay your debts and you have not been able to negotiate a solution with your creditors, then voluntary bankruptcy may be your best option.

There is a process by which creditors are advised that you can no longer afford to pay your debts.   There are some forms to fill in and some documentation you have to provide.  XDebt can help you with this.  When the forms are accepted by the Official Receiver in Bankruptcy you will become bankrupt and a trustee will manage all your creditors.

When you become bankrupt most of your debts are cleared and you may lose rights to some or all of your property.

Your unsecured creditors must stop contacting you and most legal action taken against you by your unsecured creditors will stop. 

You will be allowed to keep some of the cash you have in the bank, personal and household goods and your tools of trade (certain value limits apply).  You may also keep your car, depending on its value and how much has been paid off already.  You will be responsible for any debts incurred by you after bankruptcy.

Any equity or interest you have in a property must be dealt with by the trustee for the benefit of your creditors and this means it will probably be sold to pay the debt.

There are some debts that you will still have to pay and these include fines for breaches of the law, debts arising from fraud, maintenance payments and Child Support, HECS (Higher Education Contribution Scheme) debts incurred before your bankruptcy and Student Supplement Loans.  Bankruptcy does not protect you from payment of these debts, and you are still liable for these.

If you have unpaid accounts such as electricity, telephone or gas the supplier may require payment of the account or a bond for the service to be maintained and any debts incurred after bankruptcy will still have to be paid.

You are required to notify your bankruptcy trustee of all changes of name and/or address and if you wish to travel overseas you have to get written approval from the trustee.

Bankruptcy usually lasts for three years unless your trustee lodges an objection to you being discharged and then the bankruptcy can be extended for an additional five years.

If you do not go voluntarily bankrupt, an unpaid creditor can make apply to make you bankrupt if your debt is more than $5000 and this is called bankruptcy by sequestration order.

What are the consequences?

Bankruptcy usually lasts for 3 years.  Your name will be on the public record, the National Personal Insolvency Index, forever.

While you are bankrupt, lenders may limit your ability to borrow money or buy things on credit. You may also find it hard to rent a property, or get any utilities connected without paying a bond and some banks will not let you operate an account or will restrict how you can use your account.

When applying for credit, over a set limit, you have to disclose to the person dealing with that you are an undischarged bankrupt.

You can still operate a business while bankrupt. If you trade under an assumed name or business name either as a sole trader or in partnership, you have to disclose to all your bankrupt status. You cannot be a director of a company or be involved in its management without the permission of the Court.

What assets could I lose?

An asset is defined as anything of value you own when you become a bankrupt and anything you buy or receive before the end of your bankruptcy.

Any equity or interest you have in an asset must be dealt with by the Trustee for the benefit of your creditors    This may mean that the asset has to be sold.  Examples of such assets assets include:

  • Houses; apartments; land; business and any other real property
  • Motor vehicles which are not exempt
  • Shares and other investments
  • Any tax refund for income earned before you became a bankrupt
  • Proceeds from a deceased estate where the person dies before or during your bankruptcy
  • Lottery winnings

If the asset is jointly owned the trustee may consider selling his interest in your asset to a non-bankrupt joint owner. Alternatively the joint owner (provided they are not bankrupt) may make an offer to purchase the trustees’ interest in the asset.

Any substantial funds accumulated in a bank or similar account may be used by the trustee to pay your creditors.  In addition, the trustee can investigate any asset transfers that occurred within a period of 5 years prior to the bankruptcy and may recover the asset if the transfer is deemed to have been made to avoid paying creditors.

What assets can I keep?

An unsecured debt is one that is not secured by any assets;  e.g. your credit card or personal loans. Unsecured creditors generally do not have the right to take back the item you purchased from the funds advanced by them. When you become a bankrupt what you may keep includes:

  • Most of your ordinary household or personal items
  • Tools of trade used to earn an income up to a set limit
  • Vehicles (e.g. cars or motorbikes) up to a set limit
  • Most funds in a complying superannuation fund
  • Life insurance policies
  • Compensation for a personal injury
  • Centrelink payments

What if my assets are jointly owned?

When you become bankrupt the trustee becomes the owner of your share of any assets you own, including for example your house.  The trustee may have to sell your share to help pay your bankruptcy debts.

If the asset is jointly owned the trustee may consider selling his interest in your asset to a non-bankrupt joint owner. Alternatively the joint owner, provided they are not bankrupt, may make an offer to purchase the trustees interest in the asset.  If another person has guaranteed some of your debts, the creditor/s is entitled to recover payment of your debts from your guarantor.  If another person has provided his house to form security for your debts, that house may be taken possession of and sold to pay off your debts.

What will happen to my job/income?

Bankruptcy generally does not prevent you from working and your employer is not normally notified of your bankruptcy unless you owe him/her money or unless you have failed to pay compulsory contributions.

If you earn an income above an indexed statutory amount you are obliged to make regular payments to the trustee for the benefit of creditors. As contributions are enforceable at law if payments are not made voluntarily the trustee can issue a notice on your employer to garnishee your income.

In order to assess the contribution payable, a bankrupt’s income is broadly defined to include money received from their employer and any other benefit, for example the private use of a motor vehicle or subsidised housing. Other factors are then considered and include the amount of income tax payable, maintenance payable, and the number of your dependents.

Your bankruptcy may prevent you from undertaking employment in certain occupations or holding certain licenses. Particular industry associations or licensing authorities may impose certain restrictions or conditions on a member or licensee.    If your bankruptcy means that your professional license is suspended, this could also mean that you can no longer operate a business in certain industries. You need to contact the relevant government agency or professional association to determine how bankruptcy or an arrangement under the Bankruptcy Act may affect your trade license or membership in a professional association.

Funds from any tax refunds earned prior to the date of bankruptcy and those that are earned during your bankruptcy will be considered an asset and will be treated as income for income assessment purposes.  It is still your responsibility to lodge taxation returns.
Should you terminate your employment during the period of your bankruptcy any lump sum termination payments made to you will be claimed by your trustee.

An undischarged bankrupt or a person subject to a Personal Insolvency Agreement cannot be involved in the management of a company unless authorised by the Court.

What will happen to my business?

You can still operate a business while bankrupt. If you trade under an assumed name or business name either as a sole trader or in partnership, you have to disclose your bankruptcy status to all people and companies you deal with.   Your personal debts may affect the debts in your business if you go bankrupt.  Your bankruptcy may lead to a professional license being suspended and this could mean that you can no longer operate a business in certain industries.

You cannot be a director of a company or be involved in its management without the permission of the Court.   Should you want to continue to be self-employed, you should seek expert advice on corporate insolvency laws.

Will I have to tell people?

Not necessarily.   As a general rule, your employer will not be notified.
The only people that will know are:

  1. The people you tell.
  2. Your creditors or people you owe money to.
  3. The people that see your credit file while you are bankrupt.
  4. Those who conduct a search of the National Personal Insolvency Index

When you are borrowing money, or applying for credit (exceeding a prescribed amount) it is an offence unless you inform the person you are dealing with that you are an undischarged bankrupt.

Are there any debts that I will still have to pay, even though I am a bankrupt?

You must continue to pay bills such as your rent and electricity, and any additional debts you incur after your bankruptcy commences.  There are some debts that you must continue to pay during bankruptcy such as fines, HELP debts and student loans, maintenance and child support payments.

When does bankruptcy end?

Bankruptcy lasts for three years unless your trustee lodges an objection to you being discharged and then the bankruptcy can be extended for an additional five years.

If you forgot to declare a debt and remember it later, you should contact your trustee as soon as possible so that it may be added to your list of creditors. Failure to disclose debts could extend your bankruptcy to 5 years.

What will bankruptcy do to my credit report?

Bankruptcy is recorded for 5 years. Your name will be listed for 5 years from the commencement of your bankruptcy even if your bankruptcy has been discharged.

Lenders may limit your ability to borrow money or buy things on credit and you may find it hard to rent, or get electricity, water or the telephone connected, without paying a bond.

Your name will be on the National Personal Insolvency Index for life.

Offenses under Bankruptcy

There are penalties for offenses under the Bankruptcy Act which vary from 6 months to 3 years imprisonment upon conviction.

Offenses include:

  • disposing of property before bankruptcy with intent to defeat your creditors
  • failure to disclose assets
  • the deliberate obtaining of credit when you know you cannot pay
  • gambling and speculation which materially contributes in bankruptcy
    incurring debts during bankruptcy exceeding a prescribed amount (indexed) without disclosing that you are bankrupt
    operating a business under an assumed name, without advising your bankruptcy
  • leaving Australia without the trustee’s permission

Contact us to Find Out if Bankruptcy is Right For You

Declaring bankruptcy is a legitimate financial solution.  It may be applicable to you or maybe there’s a better option.  It all depends on your situation.

Call us or click the button below to find out of bankruptcy is the right solution for your situation…