Types of Debt Covered By Bankruptcy
When I filed for bankruptcy I wanted to know whether all of my debts would be gone to give me a clean slate, and if not, what debts would not be covered that I would have to pay. Once I understood what debts would be removed by my bankruptcy I was able to feel more comfortable with bankruptcy as a solution that would work for me. I expect that you are the same, so let’s have a look at what debts are covered by bankruptcy and what debts still have to be paid by you.
What bankruptcy does cover?
Examples of debts that will be covered by your bankrupt estate(bucket) include:
- Credit Card debt
- Store Card debt
- Unsecured Bank debt
- Personal Loans
- Taxes owing to the Australian Tax Office
- Personal Guarantee debt
- Business Debt
- Unsecured loans from friends and family
These debts are all put into the bankrupt estate(bucket) and paid by your Bankruptcy Trustee, with money from the sale of your assets (eg: boat, caravan or shares) and your income contributions if you are over the threshold. If there isn’t any money available, the debts are written off.
What bankruptcy does NOT cover?
Examples of debts that will not be covered by your bankrupt estate(bucket) and will have to be paid by you even though you are bankrupt are:
- Fines imposed by a Court
- HECS Debt
- Debts resulting from Fraud
- Child Support assessments from the Child Support Agency
- Unliquidated debts, where for example the Court is yet to specify how much you owe
If you have any debts which you think may not be covered by your bankruptcy give me a call and I will give you my thoughts on whether the debt will or won’t be covered by your bankruptcy and whether bankruptcy is a sensible option for you. Call 1300 764 197 or email firstname.lastname@example.org.
I should also mention what happens when you have a secured debt and become bankrupt. Secured debt is where an asset is given as security for the debt. A good example of this is the family home. The loan from the bank is secured against the house and if the house is sold the bank gets paid before the home owner receives any money from the sale of the house.
When you become bankrupt, if you have a property that has been given as security for the debt, like a house, when the property is sold if there is any money left over after the bank has been paid, these monies will be paid to the bankrupt estate(bucket). If in the alternative, when the property is sold and the sale monies are not enough to payout the banks debt, the bank will lodge a claim with the bankrupt estate(bucket) for the shortfall and cannot chase you for the monies.
The most common examples of secured debt are hire purchase and lease agreements for cars and bank loans on houses.
Bankruptcy stops the debt collectors…
Many people I talk to are exhausted from receiving the debt collection phone calls, and I would say are motivated to file for bankruptcy to stop the debt collection phone calls. Having been there myself I do understand how they feel.
I think it is important that I also point out that bankruptcy not only provides you with protection from the debt collector, stopping the harassing phone calls but also stops your creditors taking you to Court and obtaining Court judgement against you. Bankruptcy stops the creditor from:
- Garnishing your wages
- Obtaining a Court order for the Sheriff to sell your assets
- Having you examined before the Court in regard to your financial affairs
Bankruptcy protects your income, household furniture, car and tools of trade. This is important for you to be able to pick yourself up and get going again.
Often people tell me that it is like bankruptcy was a safe house for them. I can understand people saying this. I would say that bankruptcy is more than a safe house, as it also gives you the opportunity for a fresh start and the ability to go forward in your life. Thankfully most of us only need that ‘safe house’, while we recover and then we get back into living our lives, this is where you will get a ‘second wind’ from bankruptcy.
Where to from here….
I recommend that you do a list of your creditors and put a circle around those creditors that will be caught by your bankruptcy. If any creditors do not have a circle around them, give me a call on 1300 764 197 or email email@example.com and we can have a chat as to whether those creditors will be covered by your bankruptcy and whether bankruptcy is an option for you to consider.
The sooner you know where you stand, the better it will be for you.
If bankruptcy covers your debts you will be debt free as soon as you become bankrupt. It takes only one to two weeks to become bankrupt. I cover how you become bankrupt in the section ‘How to Apply for Bankruptcy’, which can be accessed here.