Exploring Personal Insolvency and Bankruptcy

Personal insolvency is a challenging and complex process that can overwhelm anyone. In Australia, the process is governed by the Bankruptcy and Insolvency Act 1966, which sets out the legal framework for insolvency. Additionally, the new Bankruptcy Regulations 2021 involve declaring yourself bankrupt or entering into a debt agreement with creditors.

At the Bankruptcy Advisory Centre, our expert team has over 30 years of experience. It can guide you through the complexities of bankruptcy and allow individuals to manage their debt and get a fresh start financially.

Definition of Personal Insolvency

Personal insolvency is a term used to describe an individual’s inability to pay their debts as they fall due. This can happen for various reasons, such as job loss, illness, or overspending. When individuals cannot pay their debts, they may declare bankruptcy or enter into a debt agreement with their creditors.

There are two main types of personal insolvency: bankruptcy and debt agreements. Bankruptcy is the legal process that involves declaring oneself bankrupt. At the same time, a debt agreement is a legally binding agreement between an individual and their creditors to repay a portion of their debts over a period of time.

Declaring Bankruptcy or Personal Insolvency

To be eligible to declare bankruptcy in Australia, an individual must meet specific criteria. They must be unable to pay their debts as they fall due. They must be living, working, or carrying on business in Australia, be Australian citizens, or have a connection to Australia.

The Voluntary Bankruptcy Process

The process of declaring bankruptcy involves several steps. First, an individual must complete and lodge a bankruptcy application with the Australian Financial Security Authority (AFSA). The application must include information about the individual’s income, assets, debts, and creditors.

Once the application is lodged, AFSA will assess it and, if approved, issue a bankruptcy notice to the individual’s creditors. The individual will then be declared bankrupt, and a bankruptcy trustee will be appointed to manage their affairs and distribute their assets to their creditors.

At the Bankruptcy Advisory Centre, we can manage this whole process for you, ensuring that the paperwork that needs to be submitted to AFSA is correct. We can then act as your bankruptcy trustee, working with you to provide all parties with the best and most fair outcome.

The Involuntary Bankruptcy Process

Involuntary bankruptcy occurs when a creditor files a petition with the court to declare an individual or business bankrupt. The creditor will issue a sequestration order, and the court will appoint a bankruptcy trustee to manage the debtor’s affairs and sell off assets to repay the creditors. At the Bankruptcy Advisory Centre, we can help you avoid this situation by acting early and on your behalf as the court-appointed bankruptcy trustee, working with you to ensure the best outcome for all parties.

Consequences of Bankruptcy

Declaring bankruptcy can have significant consequences for an individual. They may have to sell their assets, including their home, car, and personal belongings, and their credit rating will be affected. There are exceptions to what assets can be sold, for example, tools of the trade. People who declare themselves bankrupt may also be subject to restrictions on their employment, travel, and financial activities.

Entering into a Debt Agreement 

An alternative to declaring bankruptcy is to enter into a debt agreement with your creditors. Eligible individuals must meet specific criteria, have unsecured debts of less than $118,369.20, assets of less than $239,232.60, and be able to make regular payments towards their debts.

The Debt Agreement Process

The process of entering into a debt agreement involves several steps. First, an individual must engage a debt agreement administrator, who will assist them in preparing a debt agreement proposal. The proposal must include information about the individual’s income, assets, debts, creditors, and proposed payments towards the debts.

At the Bankruptcy Advisory Centre, we can help you prepare this proposal, and once a proposal is prepared, it is submitted to the creditors for consideration. If a majority of the creditors agree to the proposal, the debt agreement is binding on all creditors, and the individual will be required to make regular payments towards their debts as per the agreement.

Consequences of Debt Agreements

Entering into a debt agreement can have consequences for an individual. Their credit rating will be affected, and they will be required to make regular payments towards their debts for up to five years. They may also be subject to restrictions on their employment, travel, and financial activities.

Alternatives to Bankruptcy and Personal Insolvency

Before considering bankruptcy, personal insolvency, or a debt agreement, individuals should explore other alternatives to managing their debt, such as debt consolidation, debt management plans, and financial counselling. These alternatives may help individuals avoid the consequences of personal insolvency, Involuntary bankruptcy, or a debt agreement and provide them with a way to manage their debts effectively.

Need more information about Personal Insolvency?

“Personal insolvency can be a complex and stressful process, but it can also allow individuals to manage their debt and get a fresh start financially. Whether an individual declares bankruptcy or enters into a debt agreement, it is essential to understand the eligibility criteria, the process involved, and the consequences of each option.

The Bankruptcy Advisory Centre offers information and advice to help individuals make informed decisions about their financial future by assisting them in understanding bankruptcy regulations, debt agreements, and the options for dealing with personal debt by offering unique solutions tailored to your situation.

Claiming bankruptcy or a personal debt agreement may be your best option if you are drowning in debt and constantly stressed over your financial future. If you need personal insolvency advice in Perth, Brisbane, Melbourne, Sydney or anywhere around Australia, we can help you make informed choices and choose your path to financial freedom.”