Implications of Bankruptcy
3.1 How do I declare bankruptcy?
Essentially, there are two ways to declare bankruptcy, either voluntarily or by way of a creditor in whom you owe money to. Pursuant to section 55 of the Act, you may lodge a debtor’s petition in order to declare yourself bankrupt. You, in your capacity as a debtor, will be deemed bankrupt from the day the petition is accepted by the Official Receiver.
Alternatively, a creditor may lodge a creditor’s petition, simply applying to make you bankrupt due to debts owed and the inability to meet those debts. A creditor may apply for a bankruptcy notice once they have received a court judgment concerning the debts. This usually relates to two or more debts, as well as multiple creditors.
3.2 What happens when I become bankrupt?
A bankrupt is listed on the National Personal Insolvency Index permanently which can be searched by members of the public. A bankrupt will be required to disclose his or her bankruptcy to creditors if seeking credit over the prescribed limit, which is approximately $5,880.
A bankrupt will also have to disclose his or her bankruptcy if trading under a business name and according to section 206B of the Corporations Act 2001 (Cth), a bankrupt cannot manage a company without Court approval.
Bankruptcy may also affect your employment and your ability to hold specific licences, as well as obtain a security clearance. It is advised that, should you declare bankruptcy, you should confirm the conditions of your employment in regards to bankruptcy.
3.3 What are my options? Do I have other options aside from bankruptcy?
Bankruptcy is just one formal option available under the Bankruptcy Act[?] to manage your debt. Other formal options include six-month relief and a debt agreement.
A bankruptcy alternative is a Personal Insolvency Agreement (PIA). A PIA involves the appointment of a trustee to take control of your property and make an offer to your creditors. The offer may be to pay part or all of your debts by instalments or a lump sum. Entering a PIA may have a severe impact on you. It may affect your employment, ability to get credit and will appear on a public register permanently.
Additionally, a debt agreement (DA) is available pursuant to Part IX of the Act. It is an agreement between the debtor and his or her creditors to compromise by paying a percentage of the debts owed over a period of time.
3.4 What do I have to do when I become bankrupt?
When you are bankrupt:
(a) you must provide details of your debts, income and assets to your trustee.
(b) your trustee notifies your creditors that you’re bankrupt – this prevents most creditors from contacting you about your debt.
(c) your trustee can sell certain assets to help pay your debts.
(d) you may need to make compulsory payments if your income exceeds a set amount.
3.5 What are the consequences of bankruptcy? How will bankruptcy affect me?
You are automatically disqualified from managing corporations and cease to be a director, alternate director or secretary of a company unless you have been given leave by the Court to manage corporations.
Bankruptcy may affect your employment, entitlements to hold specific licences, ability to obtain clearances and the ability to travel internationally. You may be required to surrender your passport to the trustee.
3.6 What happens to my debts?
If you enter bankruptcy, you will find that most debts are covered. This means that you no longer have to repay them. In some cases, your trustee may sell your assets or use compulsory payments to help pay your debts. It is essential to confirm the types of debts owed and whom those debts are owed to.
Moreover, where it is determined the debts are secured or unsecured, this will assist in determining exactly what happens to those debts and how the debt is dealt with.
3.7 Will bankruptcy affect my partner’s assets?
There is the possibility that bankruptcy may affect your partner/spouse’s assets. For example, should your partner hold an asset such as a house where you have made monetary contributions to the house, you may hold an equitable interest in the property and hence may affect your partner’s asset.
However, bankruptcy will not affect your partner’s assets if the assets are registered/insured in the name of your partner, and you have no legal or equitable interest in the asset. You should confirm the status of the assets and your interests with a solicitor.
3.8 Will I lose my job?
Bankruptcy may also affect your employment and your ability to hold certain licences, as well as obtain a security clearance. It is advised that, should you declare bankruptcy, you should confirm the conditions of your employment in regards to bankruptcy.
3.9 Discharge from bankruptcy
A bankruptcy currently lasts three years pursuant to section 149 of the Act. A bankruptcy may end early however if an arrangement can be made to annul the bankruptcy.
A bankrupt may seek an annulment of the bankruptcy by making an arrangement with his or her creditors pursuant to section 73 of the Act. This will require the bankrupt to submit a proposal for consideration and the bankruptcy trustee to prepare a report to creditors and to hold a meeting of creditors for them to vote on the proposal.
A trustee may also apply to extend a bankruptcy by objecting to the bankrupt’s discharge pursuant to section 149A of the Act. The grounds upon which an objection may be based are set out in section 149D of the Act and amongst other things include voidable transactions and not providing information to the trustee when required, including disclosing income.