Bankruptcy

There are several benefits to entering bankruptcy, assuming your financial circumstances dictate that bankruptcy is inevitable.

Remember bankruptcy is a statutory solution to severe financial stress. Bankruptcy provides protection otherwise not available for individuals subject to debt proceedings.

Some of the benefits of bankruptcy are as follows:

• Relief from severe financial stress
• Relief from creditor litigation and harassment
• Potentially more available discretionary income in the household
• Protection for certain asset categories including white goods and brown goods, so as not to impinge on daily living standards
• Access to various thresholds including primary mode of transport and tools of trade
• Exclusion of superannuation
• Protection of any proceeds from personal injury compensation or assets purchased with those proceeds
• Possible retention of the family home
• The costs of bankruptcy are borne by the estate

If no other options are available to you, and bankruptcy is inevitable, Shaw Gidley highly recommend that you consider voluntary bankruptcy. The reasons for this recommendation are as follows:

• The term of the bankruptcy commences sooner than waiting for the court order therefore you’re out of bankruptcy sooner
• The sooner you bankruptcy the sooner creditor harassment ceases
• By acting voluntarily you say the aggrieved creditor further financial loss, potentially retaining goodwill should you wish to negotiate an early discharge 
• Voluntary bankruptcy allows you to choose your trustee.

Voluntary bankruptcy requires that you approach a trustee and complete a debtor’s petition and other relevant documentation to be lodged with the Australian Financial Services Authority (AFSA). Once AFSA has process the debtor’s petition and associated documents (two to four business days) you become bankrupt.

The Bankruptcy Act 1966 does not require you to disclose your bankruptcy to your employer.

False. In Australia this is far from the truth; for most people very little changes at all. Normal household effects such as furniture are exempt from bankruptcy. And, each bankrupt can own a vehicle to the current value of $7,900. Plus, if it's under finance and the payout is more than the value then you will be able to keep the vehicle as long as you maintain the finance repayments.

The only things you need to be aware of are the threshold amounts for assets and income.

False. The Trustee in the first instance will give the co owner the opportunity to purchase your share of the property for market value.

False. You are not required to file for bankruptcy just because your spouse needs to. In some cases, where both partners have a large amount of joint and separate debts, it would make sense for both parties to file for the bankruptcy at the same time.

False. This idea emerges from the fact that a bankrupt can not be a company director for the three year term of their bankruptcy, which is true. However, you can still run a business as a sole trader, employ staff, and make money. The Government wants you to start or continue to be self employed as a bankrupt for a multitude of reasons, but primarily because you are contributing to the economy.

There was a time when this was the case but it is not true now. Yes, your bankruptcy will be put onto a Government index online but the only way you can access that information is to pay for it. As a matter of fact, the only people that will ever actually know you're bankrupt are your creditors and the people you tell.

Not necessarily. Many company directors fear that if their company goes into liquidation, they will also be made bankrupt. The personal financial affairs of the director are separate from those of their company and whilst bankruptcy may be inevitable in some cases, it is not automatic and will depend upon the director's own financial position and the extent to which they may have guaranteed any liabilities of their company.

Forced bankruptcy is a result of an agreed creditor making an application to court for an order to make you bankrupt. Usually, you will be in a dispute that the debt’s petitioning creditor has found against you. Alternatively, you may be unaware of the bankruptcy proceedings, or have chosen to ignore them, and the court will make an order by default.

False. Most people who apply for bankruptcy have jobs. In fact, a person who has two dependent children is able to earn over a $1,400 per week (as at February 2015) after tax before any contributions have to be made.

At the same time, there is no benefit to quitting your job because you think it means they will not accept your bankruptcy.

Yes. Any legal action taken by an unsecured creditor prior to bankruptcy including summons, garnishees, recovery action by the Sheriff will stop upon your bankruptcy.

False. Nobody plans for debt to get out of control. Bankruptcy Laws were made because the Government knows that good people can hit bad times. During bad times good people need help.

False. Just because you go bankrupt it doesn't mean you are barred from buying a house ever again. While you will not be able to purchase a house when you are bankrupt, you may purchase assets after discharge.

In fact, by not going bankrupt you will probably never be able to afford to buy a house because you can't save a deposit or afford mortgage payments because of your debt.

Your credit rating is affected by bankruptcy for 5 - 7 years, however, you could use this time to save for a deposit for a house.

False. Bankruptcy freezes debts incurred at the date of your bankruptcy and will clear most debts upon your discharge. In most cases, bankruptcy discharges you from the common debts like credit card debt and tax debts. Debts that are not cleared under a bankruptcy are HECS/HELP debt, debts from fraud, child support or maintenance debt.

It is unusual that someone who declares bankruptcy is denied international travel, however, you do need approval from the Trustee. You simply need to contact your Trustee and provide them with your travel dates, destination(s) and how the trip is being funded. If you travel a lot with your job for example you can apply for an open travel permit so you don't need to ask each time you want to travel.

No. Creditors are prevented from taking action to recover money from you relating to debts incurred prior to your bankruptcy.

An exemption to this is a secured creditor such as a mortgagee or car financier where they hold an asset as a security. You would need to maintain payment of the secured creditors' debts to keep the asset.