Personal bankruptcy is for Australian individuals who are in a desperate financial situation (ie they are hopelessly insolvent). If you have an insurmountably amount of debt then the decision to declare yourself bankrupt may be a perfectly sound option, particularly if you feel consumed with stress and anxiety from creditors constantly contacting you for payment.
Declaring yourself bankrupt in Australia has many positives (for example it will allow you to start afresh), however, it does have some serious consequences which you need to carefully understand. This web site will help you understand some of the consequences, however, given it is complicated we recommend that you should consult with a licenced professional so you obtain professional and impartial advice.
We have an in-house Australian Registered Bankruptcy Trustee so you can rest assured you will receive professional and impartial advice on all matters.
Australian Trustee of your choice
Did you know that you can appoint a Trustee in Bankruptcy of your choice. This only applies if you lodge a debtor’s petition (ie a voluntary appointment). If you are contemplating voluntary bankruptcy and you wish to appoint a trustee of your choosing, then contact us today. Our in-house Trustee can consent to act to administer your estate subject to terms and conditions which we can discuss with you. Call us today to discuss the benefits of appointing a Registered Trustee.
How can I become bankrupt?
A person may become bankrupt in a number of ways – either you can file to become bankrupt voluntarily (debtor’s petition) or you can be forced into bankruptcy by your creditors through court action (creditors’ petition).
Debtors’ petition (voluntary bankruptcy application)
To become bankrupt voluntarily, you will need to complete a Debtor’s Petition and a Statement of Affairs and lodge them with the Insolvency Trustee Service Australia. The forms can be downloaded for free from ITSA. If you are struggling to complete the bankruptcy forms, we offer a service whereby we will assist you in completing them.
It is critical that you complete your bankruptcy forms correctly otherwise your bankruptcy application to ITSA may not be accepted. If you fail to disclose debts or you conceal an asset your trustee could file an objection to your automatic discharge.
We can help with your bankruptcy application today. Call today on to apply on 1800 003 883.
Creditors’ petition (in-voluntary appointment)
A creditor to whom you owe money to (currently $5,000) can apply through the Federal Court of Australia for a sequestration order (otherwise known as a Creditors’ Petition). If this occurs the creditor can also obtain consent from a trustee of their choosing (ie you will not have a choice in the matter).
How long will I be bankrupt?
Typically you will be bankrupt for 3 years, however, this period can be extended to 5 or 8 years in certain circumstances.
What assets can I keep?
Some assets are protected (ie you can keep certain assets) up to the statutory limits:
- Motor car up the value of $7,050
- Tools of trade up to the value of $3,500
- Superannuation (up to the reasonable limit)
- Necessary household goods and personal effects
What assets will I lose?
As a bankrupt, you lose the ability to sell or deal with most of your assets or items of value which are not protected. Only the Trustee or a secured creditor is able to do deal with your unprotected assets or assets subject to security. The trustee’s role is to dispose of your property for the benefit of all creditors generally.
Therefore typically you will lose these types of assets:
- Motor car worth more than $7,050 (although you will retain $7,050 from the sale proceeds)
- Tools of trade worth more than $3,500 (although you will retain $3,500 from the sale proceeds)
- Superannuation over the reasonable benefit limit
- Cash at Bank over the reasonable limit (around $2,000)
- Equity in a house or other secured asset
- Jewellery or antiques.
If you have equity in a home, this equity will vest in your Trustee. For example if you own a home (ie real estate) jointly with your spouse which is worth say $400,000 and you have a mortgage of say $350,000 your equity would be $25,000 ($400,000-$350,000 / 2). This equity of $25,000 would vest in your Trustee. Your Trustee may agree to sell this equity to the non-bankrupt spouse. However, if your Trustee is unable to reach agreement with the non-bankrupt spouse the trustee may force a sale of the house through the courts.
What assets can I purchase as a bankrupt?
As an undischarged bankrupt you cannot purchase any assets as they would vest in your Trustee as after acquired property. For example if you won the lottery or received inheritance these monies would vest in your Trustee for the benefit of your creditors generally. This even includes assets purchased with your income even after paying your compulsory income contributions (if applicable).
Will I be released from all debts?
You will be released from most debts, however, you will remain responsible (ie you will still need to pay) for certain debts including:
- Child support
- Debts incurred by fraud
- Fines or penalties imposed by the court
- HECS debts
- Student loans
- Unliquidated damages (ie a claim which has not be proven or quantified by a court)
Therefore if you owe the above listed debts will you remain liable to pay for them. Furthermore a bankrupt will be liable to pay for all debts incurred after you have become bankrupt. If you don’t pay for debts incurred after you have been made bankrupt then you could be made bankrupt again (ie you could become bankrupt for the 2nd or 3rd time).
Will I pay Income Contributions?
Your Trustee will assess you for compulsory income contributions. If you earn more than the statutory thresholds (which varies with the number of dependents) you may become liable to pay compulsory income contributions to your trustee. The statutory thresholds are published by ITSA. We have also prepared a calculator for you to assess if you will become liable for contributions (please note our calculator is a guide only). It is your trustee that will assess your compulsory income contributions.
Your trustee will undertake this assessment every year that you are bankrupt (so at least 3 times).
A bankrupt’s income can also include the value of benefits received from their employer or friends.
What are my restrictions as a bankrupt?
You won’t be able to freely travel overseas
You will need to surrender your passport to your trustee. Your trustee may allow you to travel, however, it will be at their discretion. Your trustee may require all income contributions to be paid up to date before consent to travel will be provided.
You can’t incur credit
As a bankrupt will not be able to incur credit of more than $5 ,040 (current as at March 201) without disclosing that you are bankrupt.
You cannot be a director of a company whilst you are bankrupt
Under the Corporations Act you are ineligible to be a company director whilst bankrupt.
You cannot accumulate assets whilst bankrupt
If you accumulate assets as a bankrupt these assets will vest in your trustee as after acquired property.
What are my obligations as a bankrupt?
Disclose all debts
You must disclose all debts to your trustee. Failure to do so is an offence and your trustee is obliged to refer it to ITSA for investigation. This could lead to prosecution.
Complete yearly income assessment questionnaire
Your trustee will ask that you complete an income contribution questionnaire for each year that you are bankrupt. Your trustee will then determine if you are liable to pay statutory income contributions. If your trustee assesses you to pay income contributions and you fail to do so your trustee can object to your discharge from bankruptcy which will extend the term of your bankruptcy.
Keep your trustee appraised of your whereabouts
You must keep your trustee appraised of your current contact details and residential address. If you fail to do so your trustee can object to your automatic discharge.
What happens to my credit rating as a bankrupt?
Declaring bankruptcy affects your credit rating.
Bankruptcy is recorded for 7 years with credit reporting agencies even if you have been discharged.
Bankrupts are listed permanently on the National Personal Insolvency Index which is a database maintained by ITSA.
Bankruptcy Australia Information
- Bankruptcy – What is it?
- Bankruptcy term & objections to discharge
- Credit whilst bankrupt
- Home ownership whilst bankrupt
- Income Contributions for a bankrupt
- Powers of a Trustee
- Protected Assets whilst Bankrupt
- Purchasing Assets whilst Bankrupt
- Role of a Trustee
- Trusts in bankruptcy
