Bankruptcy in Australia
Bankruptcy is a procedure that you legally apply for when you are unable to repay the outstanding debts to all the creditors. It assists you by stopping debt collectors from inquiring about the payments and releasing you from your debts. However, declaring bankruptcy in Australia is only applicable for individuals and not companies.
While declaring bankruptcy can release you from the debts, it has long-term financial impacts. If you are operating your business as a partnership or a sole trader, you and your partner can file for bankruptcy as individuals. The business can’t become bankrupt.
Here is everything you need to know about declaring bankruptcy in Australia:
How to Declare Bankruptcy in Australia
There isn’t any maximum or minimum amount of income or debt required to apply for bankruptcy. If you are ineligible for alternative options and cannot repay your debts, you can file a petition to become bankrupt. To declare bankruptcy, you must meet the following requirements:
- Inability to pay debts
- Australian citizen or have a business or residential connection to Australia
If you owe your creditors more than $5,000, they might force you to become bankrupt, or you can voluntarily file for bankruptcy. Once you have decided to file for bankruptcy, you would have to prepare the following documents:
- Statement of Affairs
- Debtor’s Petition
These documents must be prepared and submitted to the Australian Financial Security Authority (AFSA) for approval. It is a government agency administering and regulating bankruptcy in Australia. You will have the option to select a trustee partner or allow AFSA to administer the bankruptcy.
Once your application is approved, AFSA will send a bankruptcy notification to all the creditors you have listed in the Statement of Affairs.
If your application isn’t accepted, AFSA will notify you, and you can apply for a decision review by the Administrative Appeals Tribunal (AAT). Your creditors can resume contacting you about the payment and might also take collection actions until the submitted petition gets accepted.
To Commence Declaring Bankruptcy, You Can Start by Having the Following Available:
- Your identification, driver’s license, passport or birth certificate
- Your current address
- A full list, including name and address, of your creditors secured and unsecured
- The amount of money you owe your creditors
- Asset and liabilities statement
What Happens When You Declare Bankruptcy?
Once AFSA has approved your application, a trustee will be assigned to manage your financial situation, including:
- Investigating your financial issues and making efforts to recover assets you might have transferred or sold before declaring bankruptcy.
- Selling assets, including vehicles or properties
- Contacting the creditors and evaluating their claims
- Claiming a percentage of your income for repaying the creditors
The bankruptcy duration is typically three years and one day. You get released from the debts once you have been discharged from bankruptcy. However, the bankruptcy will be on your credit file for five years or more. It is recorded permanently on the National Personal Insolvency Index, which is a public record of individuals who have entered a formal debt agreement or have been bankrupt.
Once you become bankrupt officially, the unsecured creditors will stop contacting you, and almost all legal actions will stop. Most unsecured debts will be cleared, including overdrawn bank accounts, unpaid rents, personal loans and credit cards.
However, there are certain debts that you have to keep on paying even during bankruptcy, including toll fines, HELP/HECS, and child support. You will be liable for these debts and should directly contact the relevant creditors to discuss options of payment.
Consequences of Bankruptcy in Australia
While bankruptcy offers relief to you when you are unable to pay your debts, it comes with severe consequences. Declaring bankruptcy in Australia can have an impact on your:
- Assets, most of them would be sold to repay your debts
- Ability to internationally travel
- Ability to get future credit
- Business, employment, and income
It might also result in restricting future ambitions as being bankrupt prevents you from
- Continuing or starting some professions or trades
- Holding some public positions
- Holding the director’s position in a company
It is essential to understand these consequences before you declare bankruptcy to determine if it is the right decision for you.
Help With Declaring Bankruptcy in Australia
When your bills start to pile up, the creditors keep calling for the payment and you don’t have a way to repay the debt, bankruptcy can be a way to find a fresh start. It is essential, however, to get in touch with a bankruptcy consultant to explore alternative options, like a formal debt agreement or informal arrangement.
If declaring bankruptcy is the only way out, a professional can guide you through the process and help you file the proper documents so that you can take control of the financial situation and gradually build yourself up again.
We are experts with over 70 years of combined experience in debt solutions and bankruptcy in Australia. Give us a call on 1300 887 210 or send us a message and we can give you a free consultation and discuss all the options available to you.
As a Trustee in Bankruptcy, Ross Thomson is often required to think outside the box. As well as creative thinking, Ross brings compassion to the table.
For Ross, it’s important to see the people behind the financial problem –not just numbers.
Ross recently helped a bankrupt client who lives in a retirement village with her seriously ill husband.
The unit she & her husband live in is not owned by them, but subject to a 20-year lease.
The money to be repaid by the management was due only at sale, when the client finally left the retirement village.
Sale of the unit was likely to take several years &, if he did sell the couple’s unit, Ross realised he would be effectively evicting them from their home, without resources or family to help them.
Ross decided to contact the retirement village management & put a proposal to them that they prepay some of the moneys they would otherwise pay the client.
The village management considered the proposal & have agreed to prepay some of the moneys otherwise due.
The client is relieved that she will not be evicted & can now concentrate on helping her husband through his health issues.
The moneys paid represented about 75% of what would have been available to creditors if they waited two years.
It is a win for the client and for the creditors.
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Andrew and his team do an excellent job of helping their clients with bankruptcy advice and it is a pleasure to work with him.
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