Voluntary Bankruptcy - Is it for me?

   

Voluntary Bankruptcy: Is It For Me?

You can become bankrupt in one of 2 ways:

1.    On the application of a creditor (someone you owe money to), called a Creditor's Petition, where the debt is more than a certain amount, currently $2,000, (but only after they have obtained a court judgment against you),

2.    On your own application, called a Debtor's Petition.

Voluntary bankruptcy should be considered very carefully before you take this step. If you are not sure if this is for you, you should speak with a financial counsellor, a lawyer or the Insolvency Trustee Service of Australia (ITSA). See Contacts List.

What does bankruptcy do?

Bankruptcy gives you some breathing space to sort out your financial position when you are unable to pay your debts, rather than are simply unwilling to do so. It also allows for the equitable distribution of the bankruptcy estate amongst creditors for payment of debts.

The Official Receiver in Bankruptcy also has the right to reject your application in a number of instances where it is considered you are able to pay your debts but unwilling to do so, or you have already been bankrupt a number of times.

Are all debts covered in my bankruptcy?

No, not all debts can be included in your bankruptcy. Debts that are not included are:

Fines issued by the court, Child Support and maintenance payments, some Commonwealth Government debts such as student loans and HECS fees (Higher Education Contribution Scheme), debts incurred by fraud, claims for damages (example a car accident, that have not yet been decided upon by the court), or debts incurred after your bankruptcy.

Also debts that are secured by a mortgage or some other charge are not included in your bankruptcy. In this case the lender can take possession of the secured goods or property if you default on your loan to satisfy the debt.

How long would I have to be bankrupt for?

Generally you are made bankrupt for 3 years, but may be longer in some circumstances up 8 years. This could occur where you haven't assisted your Trustee in Bankruptcy as required, haven't disclosed relevant information, such as about your assets or income, or failed to pay your income contributions, advise your Trustee of all debts, or to provide your Trustee a Statement of Affairs.

Can I still be chased for a debt after I have become bankrupt?

No, unless the debt is to a secured creditor, and arrangements are in place about paying back this loan, or if the debt was incurred after your bankruptcy.

If the creditor continues to chase you and insists you pay the debt, you should notify your creditor or the Police if they have become physically threatening or menacing.

Would I have to pay anything towards my debts whilst I'm bankrupt?

No, unless you earn more than the prescribed limit  (currently $42, 242.20). However this figure changes depending on the number of dependants you have.

You can however, enter into financial arrangements with particular creditors to pay back the money you owe, called Debt Agreements).

What happens to my assets when I am bankrupt?

Your assets will be taken by your Trustee in bankruptcy and sold to satisfy your creditors in whole or part. However, not all assets can be seized. See below: ˜Can I Keep Any Assets After I am Bankrupt?"

Is joint property protected in my bankruptcy?

No, your share can still be taken to pay off your debts, but it is slightly more complicated in this situation.

What happens to Joint debts or to the guarantor of my loan if I declare bankruptcy? 

Bankruptcy does not affect a creditor's right to pursue a debt against a joint party or a guarantor for the total amount outstanding. 

If a guarantor has paid the debt, then they are entitled to make a claim in your bankruptcy for the amount. 

Can I keep any assets after I am bankrupt?

Yes, you can keep some things. For example, one car up to a certain value, (currently $6,700), necessary household and personal items such as clothes (except for special and collectors items), beds and refrigerator, and some tools of trade up to $3,350, personal injury compensation, or any property purchased wholly or substantially from this money.

What happens to property transferred jut before my bankruptcy?

The Trustee has the power to set aside transactions made within 5 years of your bankruptcy, especially if they were made to defeat your creditors claims, the amount of the transaction was less than the market value, or that there was payment made to some of your creditors in preference of other creditors.

Do I need to tell my employer about my bankruptcy?

No, unless it's a particular requirement of the licensing authorities or professional associations of your trade or profession.

Is my credit record affected by my bankruptcy?

Yes, your bankruptcy is noted on your credit file for 7 years.

Will I be required to attend court in relation to the bankruptcy?

Yes, if a Creditor has made the bankruptcy application. You may still need to attend court where you have made the application if your trustee thinks there are matters requiring examination before the court or the official receiver.

Can I borrow or incur debts just before my bankruptcy?

You should not incur any further debts if you are already unable to pay your debts at this point (therefore insolvent). It may be an offence to do so under the Bankruptcy Act, and therefore you may be prosecuted. 

Can I borrow when I am bankrupt and after I am discharged?

There are some limitations to borrowing whilst you are a bankrupt, and how much you are able to borrow without having to notify the lender of your bankruptcy. After you are discharged from your bankruptcy, borrowing may still be difficult in some cases. Therefore, you should be careful not to enter into a loan agreement where the interest rate and repayments are too high or you are unsure about the other terms. It could be tempting to accept such a loan because a lender is willing to give you the money. However, this may mean that down the track you will experience more hardship in trying to repay the loan and pay your other debts.  

Is bankruptcy on the public record?

Yes, bankruptcy forms a public record, and is recorded on a register (Personal Insolvency Index). This means that for a fee anyone can obtain this information.

Can I change my mind after I apply for bankruptcy?

You usually have a 7 day cooling off period from when you make your application, to reconsider whether you want to continue with the bankruptcy or not. You can only do this once every 12 months, which means that you can make more than one bankruptcy application (Debtor's Petition).





Note, the prescribed amounts are current as at 29 October 2009 as per the Indexed Amounts recorded on the Insolvency and Trustee Service Australia (ITSA) website: www.itsa.gov.au.