What Are The Benefits Of Bankruptcy?
Bankruptcy is a major decision that should only be considered after exhausting all other available options for debt payment. While specific circumstances could vary among different debtors, it is essential to fully understand the bankruptcy process in Australia, particularly the benefits and drawbacks of bankruptcy. When you are fully aware of the entire process, it will help you in making an informed decision.
If you are a non-business, insolvent debtor with no valuable properties, then bankruptcy could provide you a fresh financial situation without being constantly bothered by your creditors and the fear of any legal action.
However, if you are a business debtor or have a valuable property under your name, bankruptcy could be a devastating experience since you could face loss of income and assets but it can still give you a way out of a tricky financial situation.
It is important to consult an experienced bankruptcy professional to weigh your options and understand the consequences to learn how the bankruptcy will impact you.
Advantages of Bankruptcy
While applying for bankruptcy should be the last resort, there are several benefits of declaring yourself bankrupt, including:
- The majority of your debts will be extinguished once the bankruptcy is discharged. All the provable debts before you are declared bankrupt will be cancelled, with some exceptions.
- Once you are declared bankrupt, the creditors won’t be able to take any legal action against you. All further communications between you and your creditors would be through the trustee assigned to your case during your bankruptcy. The stress of creditors constantly contacting you for the debt will be eliminated.
- If you don’t have any dependents and earn an annual income that’s less than $60,515 (after tax) (as at 1/1/22), your income won’t be taken to pay the debts. Low-income earners are allowed to make voluntary payments if they want to their trustee but are not obliged to do so.
- The Bankruptcy Act of 1966 in Australia provides protections to personal injuries compensation payments, life assurance payments, and superannuation payments. Through this Act, some of your assets bought through these payments can also be protected. However, these assets and payments can’t be protected if you have not declared bankruptcy and your creditors successfully file a court order payment of debt.
- Under this Act, social security payments are also protected.
- When you declare bankruptcy, some of your property can be protected and can’t be taken away for debt payment. This includes all necessary household goods and furniture, including a phone and personal computer, primary mode of transportation, including a motorbike or car that is worth less than the indexed amount.
- You might be asked to pay some percentage of your income if you have leftover money after paying for usual living expenses, like clothes, food, rent, and even your kid’s pocket money unless it gets assessed as compulsory contribution. This could come as a significant relief to know that your basic necessities will be covered.
- You would be able to work as a sole trader with some conditions.
- You would still be allowed to travel within Australia and can even travel abroad if you get permission from your trustee.
These are some of the many benefits you can have once you are declared bankrupt, but it is best to consult a bankruptcy expert to ensure declaring bankruptcy is the best option for you, depending on your situation.
Drawbacks of Bankruptcy
Being declared bankrupt also comes with its set of disadvantages, which is the reason why it should always be taken as a last resort. Here are some of the drawbacks of declaring yourself bankrupt:
- You will face difficulties in accessing credit after your bankruptcy. This happens because the bankruptcy record is updated in your credit report and stays for the next seven years. The creditors will review your credit report whenever you want to access credit and might refuse your request when they find out you were bankrupt.
- A permanent record of your bankruptcy will be kept with the Bankruptcy Inspector General. Anyone would be able to access the bankruptcy records for a fee and view them on National Personal Insolvency Index (NPII).
- You might be asked to hand over your passport to your trustee and must get permission if you want to leave the country. You will be penalised if you try to delay or defeat the creditors by trying to leave the country.
- It is a criminal offence to obtain a credit of more than $6,065 (indexed, as of 1/1/22), including writing cheques or hiring of goods, if the creditor has not been informed about your bankruptcy.
- If you fail to cooperate with your trustee and neglect to fulfil your duties, like informing your trustee about a change of address or details about your earnings, the Trustee could extend your bankruptcy by up to 5 years, and/or even prosecute in some cases.
- You will end up losing your valuable properties.
Should You File For Bankruptcy?
Whether filing for bankruptcy is the right decision for you or not will depend on your unique circumstances. As stated earlier, declaring yourself bankrupt should be your last option. It is recommended to get in touch with a bankruptcy expert to go through all available options.
If you can prove that you can’t make your debt payments when they are due, have tried all other available solutions to repay debt, and are a citizen of Australia or have residential or business connections with Australia, declaring bankruptcy might be a solution for you. Get in touch with us for a free consultation.
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