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The Bankruptcy Process

Q.

What is Bankruptcy?

A.

Bankruptcy is the legal process of declaring to your creditors that you don’t have enough money or value in assets to repay your debts. Bankruptcy relieves you of your obligation to your creditors to repay your debts and will allow you to wipe the slate clean and start again.

Q.

What is the minimum amount I need to declare Bankruptcy?

A.

The minimum amount of debt you have to acquire before you declare bankruptcy is $5,000. However, we recommend you first try to speak with your creditors about financial hardship to sort out a payment arrangement or investigate alternative options. Bankruptcy is serious and does come with restrictions and should be seen as a last resort.

Q.

When should I declare Bankruptcy?

A.

Bankruptcy may seem like an attractive option if you need a quick way to deal with your creditors, but bankruptcy comes with restrictions and regulations on your lifestyle which you should know about before you consider making the final decision to go bankrupt. One of our friendly, experienced debt specialists at Debt rescue can assess your financial situation and determine if bankruptcy is necessary, or find an alternate solution for your needs.

Q.

How do I declare Bankruptcy?

A.

To be eligible for bankruptcy, you need to:

  • Be insolvent. That is, be unable to pay your debts when they fall due,
  • Be present in Australia or have a residential or business connection to Australia, and
  • Fall under the indexed amounts as outlined by the Australian Financial Security Authority (AFSA)
  • Once you’ve decided bankruptcy is right for you, get in touch with us at Debt Rescue. We will help you through the application process and ensure your bankruptcy is declared quickly and efficiently.

    Your creditors can also petition for you to become bankrupt if you owe over $5,000 in debt.

Q.

Who handles my Bankruptcy?

A.

Depending on your financial situation, our in-house private Registered Bankruptcy Trustee may be appointed to your estate and act on your behalf. In other cases, AFSA will administer your estate and appoint an Official Trustee.

Q.

What debts are covered in Bankruptcy?

A.

When you declare bankruptcy, you must disclose all of your debts in a Statement of Affairs. Your Bankruptcy Trustee will determine what is provable debt and what is not. Common examples of provable debts include:

  • Personal loans,
  • Credit cards,
  • Store credit, and
  • Utility bills where the service is now disconnected.

If your home loan is secured, your creditor has the right to repossess and sell the asset to cover your debt. Any shortfall from the sale of the asset can then be considered a provable debt. Non-provable debts include:

  • SPUR debts,
  • Penalties or fines imposed by a court,
  • Centrelink debts (HECS/HELP), and
  • Debts you incur after the date of bankruptcy.
Q.

How long does Bankruptcy last?

A.

The period of bankruptcy generally lasts for three years. It can last for five or eight years under certain circumstances.

Q.

How are my debts paid if I am Bankrupt?

A.

Once your bankruptcy has been approved, the appointed Bankruptcy Trustee will take ownership and facilitate the sale of your assets. Any proceeds from the sale of your assets will be paid back to your creditors.

Your Bankruptcy Trustee will also mandate contributions from your income once you reach the set threshold. Your income threshold is determined by your financial situation and how many dependents are in your care.

Q.

What are the alternatives to Bankruptcy?

A.

Bankruptcy is often considered a last resort for debt relief solutions. That’s because it also has a number of obligations and restrictions which impact your life. Before you consider bankruptcy, its best to look at alternative options first such as:

  • Debt consolidation,
  • Mortgage refinancing,
  • Informal Debtstroyer Agreement,
  • Formal Part 9 Debt Agreement, or
  • Free financial counselling.

A Debt Rescue Case Manager will be able to best advise you of your options.

Bankruptcy and My Assets

Q.

What is Bankruptcy?

A.

Bankruptcy is the legal process of declaring to your creditors that you don’t have enough money or value in assets to repay your debts. Bankruptcy relieves you of your obligation to your creditors to repay your debts and will allow you to wipe the slate clean and start again.

Q.

Can I keep my assets as a Bankrupt?

A.

OWhen you become bankrupt, some of your assets can be kept as they are protected property, but some may be recovered by your Bankruptcy Trustee and sold. An asset can include a car or caravan.

You will be allowed to keep most household and personal items. Valuable jewellery, antiques and fine art may be sold by your Bankruptcy Trustee. You are allowed to keep work tools up to the value of $3,700.

You may also keep a car as long as its value fits within a set threshold. You are not allowed to own property, but there are ways you may keep your family home during bankruptcy.

Q.

Will I be allowed to keep my house?

A.

There are legal ways you may keep your family home through a period of bankruptcy. Your Bankruptcy Trustee will take ownership of your share of the property. If you have joint ownership of the property with your spouse, your Bankruptcy Trustee may offer to sell your share of the property to your spouse for your share of the equity.

For example, if your house is worth $440,000 and you and your partner currently owe $360,000, you have $80,000 equity in the property. Your partner might be able to purchase your share of the property for $40,000 thus keeping the home in your family.

A bankrupt is not permitted to own property and it is possible you may lose your home.

Q.

Can I own a vehicle?

A.

Yes, but only up to the value of $7,800 during bankruptcy.

Q.

Can I have a bank/cheque account?

A.

Generally, yes, with the agreement of the financial institution.

Bankruptcy and My Employment

Q.

Will Bankruptcy affect my employment?

A.

In most cases, bankruptcy will not affect your employment. However, a bankrupt cannot work in certain trades or professions due to restrictions imposed by professional associations or licensing authorities. These positions include a police officer or security guard, realtor and financial advisor.

You’re not allowed to be a manager or a director of a company while you are bankrupt. Under certain circumstances, you may continue to operate a business while bankrupt.

Q.

Will Bankruptcy affect my income?

A.

Your income will be capped depending on your situation.

Q.

Will Bankruptcy affect my credit rating?

A.

Yes. The bankruptcy will be noted on your credit file for 5 years. Your name will also appear permanently on the National Personal Insolvency Index (NPII) for life.

Q.

Will I be allowed to travel overseas?

A.

Yes. You can travel overseas while you are bankrupt, but you must apply to the court before you travel. There is a $150 non-refundable application fee and a judge will decide if you can travel based on the case you put forward.

Q.

Who will know I’m Bankrupt?

A.

Your name will appear permanently on the National Personal Insolvency Index (NPII). Anyone can search for a name on the NPII for a fee, but generally, only lenders will search the NPII if you are applying for credit.

Bankruptcy Cancellation or Annulment

Q.

Can I be released from my Bankruptcy earlier?

A.

Yes. You can be released early from your bankruptcy by having the bankruptcy annulled. This is effectively the cancellation of your bankruptcy. There are three ways you can annul your bankruptcy:

  1. Paying your creditors in full, together with the bankruptcy administration costs as at the date of annulment,
  2. A court determination, following your application for annulment, or
  3. Proposing a composition or arrangement under section 73 of the Bankruptcy Act with your creditors (this happens when you request your trustee to convene a meeting of your creditors and they accept the arrangement).
Q.

What is a section 73 proposal?

A.

During bankruptcy, you may be in a position to make a proposal to your creditors to satisfy your debts and consequently end your bankruptcy early. Section 73 of the Bankruptcy Act provides you with a mechanism to make such a proposal. If a section 73 proposal is accepted, it indicates that your creditors expect to receive a larger distribution when compared to the continued bankruptcy.

Q.

How do I make a section 73 proposal?

A.

You must send a written proposal to your bankruptcy trustee and request that a meeting of creditors be called to consider the proposal.

Q.

Is a section 73 proposal recorded?

A.

Yes. The section 73 proposal along with your personal information is permanently recorded on the National Personal Insolvency Index (NPII). Once a proposal is accepted, the bankruptcy is updated on the NPII with the status of ‘annulled’.

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