Bankruptcy – A Quick Overview

Bankruptcy clears most of your unsecured debts.

What is an unsecured debt? Maybe it is easiest to say what a secured debt is first. A car loan is an example of a secured debt, don’t pay the loan and your car is repossessed the debt is secured by the car. An unsecured debt then is a debt that is not tied to a specific asset. A credit card is an example of unsecured debt, if you don’t make your repayments there is no nominated asset that the lender can recover.

So, bankruptcy clears most unsecured debts (check here for debts cleared by bankruptcy), does that include ATO debts? Yes, ATO debts are cleared by your bankruptcy. Common unsecured debts not cleared by bankruptcy are student loan debts like Help and HECS debts, court-imposed fines, traffic fines, tolls, child support debts, and Centrelink debts are usually not cleared by bankruptcy.

How long does it take to go bankrupt? It usually takes 5 to 10 days but I have seen people become bankrupt in as little as 3 days. It depends on how quickly you get me the information I need to complete your application.

Does anyone come to my house? No, nobody will come to your house and go through your possessions. Everything is done via email or phone.

My possessions! Are they safe? Yes, all of your personal use possessions like clothes, general household furniture (excluding antiques and high-value pieces), white goods, electronics, toys, etc. these are all protected by the Bankruptcy Act (check here for more information).

How does it work with my car? In most cases, you will be able to keep your car. If you have a car worth over $8,550 with no debt then you will need to talk to your trustee for guidance (more information about cars click here).

What’s a trustee? Every bankruptcy needs a trustee to administer it. The trustee is the person who contacts your creditors (the people you owe money to) and tells them not to contact you anymore. All communication about your debts has to go through your trustee, that’s right no more annoying creditor calls, text messages, or emails – hooray. Your trustee is required to administer your bankruptcy according to the Bankruptcy Act, so in many cases, the trustee’s hands are tied the Act tells him what he can and can’t do.

Are all trustees the same? Although all trustees have to follow the Bankruptcy Act each trustee has their own way of complying with the act, just like all accountants are governed by the Tax Act, some are easier to deal with than others, so it is with trustees.  You are able to nominate your own trustee, I will be happy to help you with that process.

Does it cost me anything to have a trustee? No, you don’t pay for the trustee their fees are recovered from any funds that are paid into the estate, really the creditors pay the trustee’s fees.

This is sounding too good to be true what are the drawbacks? We all know that in life there is give and take. Bankruptcy will set you free from your unsecured debts but if you earn a high income then you are required by the Bankruptcy Act to make contributions to your bankrupt estate. If you have unprotected assets like a boat or caravan then those assets will vest in your bankrupt estate (click here for more information about bankruptcy and your assets).

They are going to take my boat? Don’t worry there are options available that will enable you to possibly still have the use of your boat, caravan, etc. This is where having a trustee that is willing to work with you is important, talk to me about appointing a trustee.

There is a lot to know about bankruptcy and the title of this article is a “Quick” Overview, so that’s probably enough for now. You will have noticed that there are links in this article to other articles providing more detailed information. I encourage you to use those links or you can just give me a call  1300 764 197 or email me and I will explain anything that you would like to know.