If you are unable to pay your bills and your attempts to reach a repayment plan with your creditors have failed, you may be forced to declare bankruptcy.
Declaring oneself bankrupt entails appointing a Trustee to take control of your assets and income in order to pay down and discharge your outstanding debt obligations. However, before you contemplate declaring bankruptcy, you must fully comprehend the implications, since it will have major ramifications for your future. Do yourself a favour and get legal advice at the outset. Declaring yourself bankrupt is a very serious and longstanding step.
How Do I File for Bankruptcy?
You can declare bankruptcy yourself (called a ‘debtor’s petition’) or by decision of the Federal Court following an application by one of your creditors (called a ‘creditor’s petition’).
Petition of the Debtor
If you want to declare bankruptcy voluntarily, you must file an application with the Australian Financial Services Authority (AFSA). You must also file a financial statement and sign to certify that you have read the specified information on the form’s back.
The paperwork must be submitted within 28 days of signing and cannot be withdrawn once submitted.
Petition of a Creditor
Any creditor who owes you $5000 or more and is unable to reach an arrangement with you on debt repayment may apply to the Federal Court for a sequestration order. You will be advised of the next court hearing and will have the option to object. The Court will issue the order if the creditor can demonstrate that you committed a bankruptcy act. Failure to comply with a bankruptcy notification issued by the AFSA at the request of the creditor, seeking payment of the debt, is the most typical act of bankruptcy.
You are officially bankrupt once a sequestration order is issued. Within 14 days of receiving the order, you must provide a statement of affairs to the AFSA. The required forms may be found on their website, as well as further information on the judicial proceedings on the Federal Court website.
What Happens After I Am Declared Bankrupt?
Your bankruptcy Trustee will begin investigating your financial issues after the AFSA receives your statement of affairs (either through debtor’s or creditor’s petition). They will also tell your creditors that you have been declared bankrupt, and they will notify you again after your Trustee has chosen how to best deal with your debts.
Who is the Trustee in my Bankruptcy?
The AFSA will appoint a Trustee to oversee your bankruptcy proceedings. If you have deliberately chosen bankruptcy, you can request to have your own registered Trustee appointed and must submit a Trustee Consent to Act Declaration with your bankruptcy application.
Following a request from your creditors, the AFSA may appoint a registered Trustee. Your creditors have the authority to remove and change your Trustee as well.
What Happens to My Property?
When you are declared bankrupt, the majority of your assets will vest in your Trustee, allowing them to sell them to pay off your obligations. Certain assets are treated differently (for example, secured creditors, such as mortgagees, who have security over a specific asset), while certain assets are completely excluded.
Can I Make Money?
Yes, you may make money while in bankruptcy – up to a specified limit. If you earn more than the threshold, you must pay your Trustee half of what you earn over the threshold.
Your Trustee will review your costs based on your specific circumstances and the number of dependents you support and will present you with an assessment for the amount you must pay for the year.
What Is the Duration of Bankruptcy?
In most cases, you will be released from bankruptcy three years and one day after submitting your application to the AFSA. If you go bankrupt due to a creditor’s petition, you will be discharged three years and one day after submitting your statement of affairs.
If you fail to comply with the Trustee, your Trustee may attempt to prolong the period of bankruptcy to five or even eight years.
Is it true that all of my debts have been discharged?
While your Trustee will make every effort to satisfy the majority of your creditors, you will still be required to pay some obligations both during and after your bankruptcy, such as:
- payments for child support;
- HECS/HELP costs, court penalties, and payments to secured creditors received as a consequence of fraud (eg to a mortgagee).
Will My Bankruptcy Affect My Credit Score?
Yes, your bankruptcy will be recorded on the National Personal Insolvency Index, which is open to the public. Credit reporting bureaux may also preserve a record of your bankruptcy for up to five years.
What Are the Long-Term Consequences of Filing for Bankruptcy?
In most cases, bankruptcy is not something that you can file and then forget about. In reality, you must be bankrupt for a minimum of three years, and the bankruptcy will appear on your credit record for a minimum of five years. Here are some other long-term consequences of declaring bankruptcy:
When you have a bankruptcy on your record, it might be more difficult to get and keep a job. Bankruptcy is a reflection of your own character and is not regarded as a favourable characteristic while looking for work. Then, if you earn more than a particular amount, a portion of your earnings will be used to make mandatory payments to trustees on your behalf. As previously said, just because you have filed for bankruptcy does not mean that you are fully free of your debts.
While taking out a small loan may be a common practice for people, if you file for bankruptcy, it will appear on your credit record for a minimum of five years, which means your chances of getting approved for a loan during this period are extremely poor.
Even travelling outside of the country becomes tough after declaring bankruptcy. Prior to travelling, you must submit an application, which may or may not be authorised depending on the circumstances.
Declaring bankruptcy is not a decision to be made lightly, as there are major implications. Before declaring bankruptcy or facing Court-ordered bankruptcy, you should extensively explore your financial choices and get legal guidance from one of our business lawyers at Harry Quinn. We can connect you most major cities in Australia including Melbourne, Perth, Sydney, Adelaide and Brisbane for a free no-obligation chat to learn more about how we might be able to assist you.