Bankruptcy Means Test
Bankruptcy is an accessible and readily available option for people to get out of severe debt. The eligibility criteria is minimal and the application process is as simple as providing the appropriate documents. There is no specific Bankruptcy Means Test in Australia, but we have explained the thresholds and criteria to help you decide if Bankruptcy is for you.
Each situation is unique
Whether or not you should consider entering Bankruptcy is entirely dependent on your circumstances. Some things to consider might include:
- your age
- your occupation
- whether or not you own property
- your finances
- the severity of your debts
- the kind of debt you owe
While Bankruptcy might be the best option for some people, others might be able to get out of debt using other debt relief methods. To help narrow things down, we have put together a list of what affect Bankruptcy can have in some of these circumstances.
Age is certainly something you should take into consideration before you decide to declare Bankruptcy. Bankruptcy has long-term effects on your credit file. It makes it difficult to borrow money and apply for lines of credit during the term of Bankruptcy. Bankruptcy generally lasts for 3 years. It is marked on your credit file for 5 years, or 2 years from when your Bankruptcy ends, whichever is later.
Your name is also listed on the National Personal Insolvency Index for life. An alternative to Bankruptcy is a Part 9 Debt Agreement. This is a formal payment agreement which requires you to make repayments for your debt. If you enter a Part 9 Debt Agreement you are not bound by the restrictions of Bankruptcy.
If you are at a stage in life where you want to travel and own property, you should look to avoid Bankruptcy. However, if you are prepared to accept the restrictions for the Bankruptcy term it might be the best option.
Generally, Bankruptcy won’t impact your employment and in most cases, you won’t even need to tell your employer about your situation. However, there are some industry bodies such as real estate, building and finance which won’t allow a declared bankrupt to hold a license. If you are concerned that this might affect you, contact your industry body to find out if Bankruptcy will impact your position.
Bankruptcy has income thresholds and if you earn over this, part will be distributed to your Bankruptcy Trustee and creditors. The base income threshold (if you have no dependents) currently sits at $56,674.80 net per year. If you have dependents, the threshold is increased accordingly. For a full list of indexed amounts, visit the Australian Financial Security Authority website.
If you own property, you should avoid declaring Bankruptcy. Declaring Bankruptcy legally declares to your creditors that you don’t have enough wealth repay what you owe. Any wealth you have over a set threshold will be sold and the proceeds will go toward paying back your creditors. As a mortgage is generally secured against the house, the Bankruptcy Trustee will sell your home to recover some of the money for your creditor. There are certain circumstances where you may be able to keep your family home.
For example, if you own your home with your spouse, you may be able to sell your share of the mortgage to your spouse, who will take full responsibility for the mortgage. We advise you to speak to a financial expert or Bankruptcy Trustee to see if this is an option for you.
Declaring Bankruptcy is as easy as filling in the appropriate forms and providing supporting documentation. That being said, the Bankruptcy process can be long, intrusive and difficult to endure.
The period of Bankruptcy has many restrictions and rules and the consequences last for years after. You need at least $5,000 of debt to declare Bankruptcy. If you owe less than $10,000 to only 2 or 3 creditors, there are other options to help you recover from debt. Budgeting, consolidating your credit cards to a lower interest card, or using the equity in your home to refinance and pay off your debt, are all options.
Even if your debts are in excess of $10,000, you could consider:
- entering a Part 9 Debt Agreement. A Part 9 Debt Agreement will still impact your credit file, but the consequences are not as severe as Bankruptcy.
- entering an Informal Debt Agreement.
You also need to be in genuine financial hardship to declare Bankruptcy. You need to be able to prove you have absolutely no way to repay your debts, you cannot just choose to go Bankrupt. If your Trustee believes you are capable of repaying your debts, they will reject your Bankruptcy application.
How to proceed
If you would like to learn more about Bankruptcy, or if you would like to explore other debt relief solutions, call Debt Rescue on 1800 00 3328. Our experienced Case Managers will talk to you about your situation and explain all the options available to you. You can also fill in our enquiry form and we’ll get back to you with some options.