What Is Bankruptcy?
Bankruptcy – What Is It
Short Answer: Bankruptcy Explained Simply
Bankruptcy is a legal process to remove most if not all of your debts, remove financial stress, and provide you with a fresh start.
There are no restrictions on who can seek the protection of bankruptcy and there is no cost to becoming bankrupt. If you are unable to pay your debts as they fall due you can apply for bankruptcy.
To become bankrupt, a 23-page Form is required to be completed and lodged with the Australian Financial Security Authority. If you need a hand to complete this form, we can help you.
Heads Up – bankruptcy releases you from most if not all of your debts immediately, and protects your household furniture and effects and your wages to make sure you have money to pay your bills and live.
Answer - Bankruptcy Explained
Bankruptcy is a process whereby people can regain financial control and plot a pathway to a future without financial stress and worry. Bankruptcy will remove most if not all of your debts (permanently), allow you to keep your essential assets, and enable you to have a fresh start. It also helps your creditors, enabling them to stop throwing good money after bad, trying to collect their debt that you just can’t pay.
That’s right, bankruptcy removes your debts for good, and gives you control and a fresh start. We believe in bankruptcy. It not only solves your financial problems but also sets you up for your future, debt-free, able to save and your wages are protected.
The Bankruptcy Act 1966 (Cth) is the Federal government’s pathway for people to enter bankruptcy. It also provides for what happens during your bankruptcy.
To be able to enter bankruptcy, you must satisfy the following:
- You are unable to pay your debts when they fall due; and
- You are currently living in Australia or have some connection to Australia. This can be a bit complicated and we recommend you talk to us if you are considering bankruptcy and not living in Australia.
If you meet the criteria above, you are eligible to apply for bankruptcy in Australia.
There are two ways you can become bankrupt:
- You can initiate bankruptcy yourself; or
- Somebody you owe money can ask the court to declare you bankrupt.
Both ways have the same effect, but filing yourself allows you to take control, is much quicker, allows you to choose your trustee (a trustee is a person who manages your bankruptcy), and is the easier way to become bankrupt without the stress of having to go to Court. Most importantly, it stops you from wondering what will happen next and lowers your stress levels.
To file for bankruptcy yourself, there is no minimum amount you must owe, you can do it without leaving your home, it is not advertised in the papers, there is no meeting of creditors and there is no lodgement fee.
We recommend the first step for you is to understand how bankruptcy works and determine whether it is the vehicle to solve your financial problems and what it will involve. If you need help with this, call our confidential hotline 1300 794 492 and we will answer your questions without obligation and steer you in the right direction.
If bankruptcy is your solution, the next step is to decide on a Trustee (the Trustee is the person who looks after you and manages your bankruptcy) If you like, we can introduce you to Alan Nicholls of Nicholls & Co who is a Registered Trustee for you to have a chat with Alan before lodging your papers for bankruptcy.
Once you have decided on a trustee, the next thing to do is prepare a Bankruptcy Form. This is your application to become bankrupt and sets out all of your personal information, details of your assets and liabilities, and your financial affairs. Don’t be alarmed by this Form, it is a standard government form required to initiate your bankruptcy and will assist the Trustee to help you through the bankruptcy process.
You can complete a Bankruptcy Form yourself and if you can do that, bankruptcy will cost you nothing. However, if you need assistance, we can assist you to fill out your paperwork, lodge it for you and guide you through the process. We charge $330 for this total service.
QUICK TIP: The Bankruptcy Form is a new document, which combines the former Statement of Affairs and Debtor’s Petition. If you hear people talking about completing a Statement of Affairs, they are referring to the Bankruptcy Form. It is the only form you are required to complete to file for bankruptcy.
Once the Bankruptcy Form is complete, we can lodge your application on your behalf to the Australian Financial and Security Authority (AFSA). This is the government department that is responsible for bankruptcy in Australia. If you would like Alan Nicholls to be your trustee, he has to complete a Trustee Consent to Act Declaration Form and it is required to be lodged at AFSA with your Bankruptcy Form.
When your application is accepted by AFSA, this is the date that your bankruptcy starts and from that point in time you no longer owe the monies caught by your bankruptcy. You will also receive a bankruptcy number and your details will be placed on the National Personal Insolvency Index.
QUICK TIP: If you are concerned that having all your details on the National Personal Insolvency Index would be likely to jeopardise your safety, you can lodge an application with your Bankruptcy Form for some of your details to not be disclosed on the National Personal Insolvency Index. This Form is called: Request For Information To Not Be On The National Personal Insolvency Index (NPII).
The period of bankruptcy in Australia is 3 years
Bankruptcy captures your debts whether they be credit card, personal loan, payday lender, higher purchase, lease, or a bill from a local supplier, and removes them for good. For bankruptcy to capture your debts, they must exist and be quantifiable at the time you become bankrupt. Also, if you incur liability the day after you get your bankruptcy number, that liability will not be caught by your bankruptcy.
There are some ‘social’ debts that bankruptcy will not remove like child support payments, fines imposed by a court, and HECS debts.
The Bankruptcy Act protects your wages, household furniture & effects (the Harvey Norman leather lounge is protected) vehicles, and tools of trade up to specified value, and all superannuation that has been accumulated over time. We are fans of bankruptcy as it removes your debt, makes sure your essential property is protected for you, protects your wages, and gives you a pathway to a new life, debt-free.
If you would like to check that your liabilities will be extinguished by bankruptcy we recommend that you give us a call on 1300 794 492 or email hello@understandingbankruptcy.com.au and we will answer your questions.
The intention of the Bankruptcy Act 1966 is to solve your financial problem and ensure that your essential needs and your wages are protected for you and your family. Beyond that, it allows you to immediately commence saving from your wages. Your savings are protected provided they remain in your bank account. Further, there is no limit on the amount you can save during the three years of your bankruptcy.
While bankruptcy lasts for 3 years, the period of bankruptcy will be reduced if your creditors are paid in full or you propose a commercial offer of settlement to your creditors under Part 4 of the Bankruptcy Act and a creditors meeting accepts your offer. When this happens, your bankruptcy is referred to as having been annulled and this is shown on the National Personal Insolvency Index.
QUICK TIP: While bankruptcy lasts for 3 years, prebankruptcy defaults will remain on your credit record for five years from when each default appeared on your credit record and your bankruptcy will be shown for the period of your bankruptcy plus 2 years. Once you become bankrupt, we recommend that you do your best to make sure that you do not have any new defaults on your credit record, this way you will have a clear credit record in 5 years’ time. Also, have a chat with us about what you can do to commence rebuilding your credit record while you are bankrupt.
We recommend that you talk to us about bankruptcy and how you can use bankruptcy to solve your financial problems and start working on where you want to be in 5 years’ time. We are here to help you and can be contacted on 1300 794 492 or email hello@understandingbankruptcy.com.au
How Can Bankruptcy Affect Me
- You have the inconvenience of needing your trustee’s written consent when travelling overseas. The Courts have held that overseas travel is a human right. You would really have to be doing the wrong thing for the trustee to be prevented from approving your overseas travel.
- Your details, date of bankruptcy, and date of discharge will appear on the National Personal Insolvency Index, as discussed above;
- Your bankruptcy will show on your credit record for 5 years;
- During bankruptcy, there are restrictions on your ability to apply for a loan without disclosing your bankruptcy;
- You may lose the right to continue or commence legal action; and
- If you are also negotiating a family law settlement, the trustee will participate with regard to your interest in assets that will vest in your bankrupt estate.
Further Reading
For more information on bankruptcy and how it works, we recommend our articles: What is Bankruptcy? How Does it Work? and our article Wages, Super, and Spending.