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Restrictions During Bankruptcy

13th March, 20131 Comment

There are many restrictions during bankruptcy you must comply with to meet the terms of the arrangement. These restrictions can have a very limiting and stressful impact on the way you live your life.

Before you enter into bankruptcy, familiarise yourself with the restrictions during bankruptcy and decide whether it is the best form of debt relief for you.

Some of the main restrictions during bankruptcy include the following:

  • When borrowing money you must disclose you are an undischarged bankrupt when seeking finance over a certain limit
  • You may not be able to continue any court action that you have started
  • You cannot travel overseas without first seeking permission from a judge

Asset Restrictions During Bankruptcy

Assets are anything of value you own when you become bankrupt and anything you buy or receive before the end of your bankruptcy. When you enter Bankruptcy, your assets are taken by the Trustee assigned to your case. The Trustee will determine if they fall within the set limits. If not, they will sell them and distribute the funds to your creditors.

Assets you can keep during bankruptcy:

  • Most ordinary household or personal items including furniture, white goods and electronics.
  • Tools used to earn an income up to a set limit
  • Vehicles, cars & motorbikes up to a set limit
  • Most funds held in a registered superannuation fund
  • Compensation for a personal injury
  • Assets held by you in trust for another person (i.e. Child’s bank account)
  • Awards of a sporting, cultural, military or academic nature

Assets your Trustee may sell to benefit your creditors:

  • Houses, apartments, land, farm & business premises (including leases)
  • Any vehicles which are not exempt from the set limit
  • Shares & other investments including shares held in your employers business
  • Tax refunds for income earned before you became bankrupt
  • Proceeds of a deceased estate where a person dies before or during your bankruptcy
  • Lottery winnings and competition prizes

Assets you own with another person can also be sold by your Trustee. If the co-owner is not bankrupt the Trustee may agree to sell your share to them at market value. Secured creditors cannot take back an asset just because you are bankrupt. However, if you fall behind in payments they can take and sell it whether you are bankrupt or not.

Employment Restrictions During Bankruptcy

The Bankruptcy Act does not impose restrictions on employment. However certain industry associations or licensing authorities may impose restrictions should a member or licensee become bankrupt.

You should check with your relevant licensing authority or professional organisation to see if bankruptcy will have an impact on your employment before you decide to apply.

You may be able to continue to operate a business whilst bankrupt. If you trade under an assumed name (i.e. partnership or firm name) you must disclose that you are bankrupt to everyone you deal with.

You cannot be a director of a company or be involved with its management without first seeking permission of the Court.

Income Restrictions During Bankruptcy

Income restrictions may apply if your after-tax income exceeds a set limit. If so, you will have to pay contributions from your income to your Trustee.

At the start of your bankruptcy, your Trustee will calculate if you are required to pay any income contributions during the first year of bankruptcy, this process will be repeated at the start of each subsequent year. You can check the Income Thresholds on our Bankruptcy Limits Page.

Overseas Travel

Before you can travel overseas, you must apply for permission from your Trustee. You must pay an application fee to your Trustee who may accept or reject your request. If your trustee believes you have a legitimate purpose to travel overseas they will give you written permission which allows you to travel.

The impact bankruptcy has on your credit file

Declaring Bankruptcy will have a long-term effect on your credit file. It will be difficult to obtain future credit and your name will be listed on the National Personal Insolvency Index for life.

A term of bankruptcy lasts for 3 years and 1 day. This may be extended by your trustee in certain circumstances. Your bankruptcy is noted on your credit file at this time, making it difficult for you to borrow more money. You must disclose your bankruptcy to borrow lease or hire goods and services more than a set limit.

Once you have been discharged from your bankruptcy, it will remain on your credit file that you are a discharged bankrupt for a further 2 years. You might still find it difficult to apply for traditional loans in this time. There are specialists non-conforming lenders and brokers who might be able to assist you during this time.

Your name will remain on the National Personal Insolvency Index (NPII) for life. The NPII is a public record which anyone can access for a fee. If you were to enter a Part 9 Debt Agreement, your name is removed from the index once the agreement is over.

Complying with Bankruptcy Regulations

A  Bankruptcy Trustee will be assigned to you once your bankruptcy application has been accepted by the Official Receiver. This Trustee will work with you throughout the period of bankruptcy and beyond to ensure you comply with the regulations and restrictions of bankruptcy.

The Trustee will go through your finances to ensure the information you provided in your Statement of Declaration is true and correct. They will also investigate the sale of any assets before you applied for bankruptcy and take possession of and sell your assets outside of the bankruptcy thresholds.

You must report any changes in your circumstances to your Trustee. Most often, your Trustee will be appointed by AFSA. If you prefer, Debt Rescue can assign our very own Bankruptcy Trustee to see you through the duration of your Bankruptcy.

The next step

If you think Bankruptcy is the best course of action for you to get out of debt, call Debt Rescue on 1800 00 3328. You can speak to one of our professional Case Managers about your specific situation and we can help you determine how Bankruptcy will impact you. We offer a number of options for people wanting to declare bankruptcy allowing you to do it yourself with our professional guidance or we can take the reigns and to it all for you.

There may be other options available to help you get out of debt. These include a Part 9 Debt Agreement, a Debtstroyer Agreement or even debt consolidation through a mortgage refinance.