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What Is Bankruptcy?

Individuals experiencing financial difficulties often seek relief by filing for bankruptcy when they reach a point at which they are no longer capable of repaying their outstanding debts. Bankruptcy should, however, only be considered as a last resort as it has a significant impact of your ability to access credit in the future.

Whilst bankruptcy may lessen the burden of unmanageable debt, it is by no means a quick-fix, and individuals considering filing for bankruptcy are advised to seek financial counseling in order to fully understand what the consequences are. Reaching a formal or informal debt agreement with your creditors may result in a preferable outcome to bankruptcy, if it can be achieved.

BEFORE FILING FOR BANKRUPTCY PLEASE SEEK FINANCIAL COUNSELING TO ENSURE YOU FULLY UNDERSTAND THE CONSEQUENCES OF GOING BANKRUPT.

Eligibility

Whilst there are no limits on income, assets or debt when filing for bankruptcy, there are certain requirements which have to be met prior to lodgment.

Individuals must:

-  Be present in Australia or be an Australian resident or have owned a house or business in Australia at the time of lodgment. S55(2A) Bankruptcy Act

-  Be unable to pay their debts as and when they fall due. S55(3AA)(a) Bankruptcy Act

-  Not have been bankrupt 3 or more times or more than once in the last 5 years. S55(3AA)(b) Bankruptcy Act

Eligible individuals are required to submit a Debtor’s Petition and Statement of Affairs to the Australian Financial Security Authority (AFSA).

Assets

Successful bankruptcy applicants will have a trustee appointed to investigate their financial affairs and to sell certain assets in order to meet repayment requirements.

Assets exempt from sale include:

· Most household and personal items. S116(2)(b) Bankruptcy Act

· Tools of trade (up to $3600 as of 22/01/14 ). S116(2)(c) Bankruptcy Act

· Vehicles where the net value of the vehicle is less than a set limit (up to $7350 as of 22/01/14). S116(2)(ca) Bankruptcy Act

· Superannuation and life assurance policies. S116(2)(d)(1) Bankruptcy Act

· Personal injury compensation. S116(2)(g) Bankruptcy Act

· Property protected under the Defence Service Homes Act of 1918.

· Property of a sentimental value to the debtor. S116(2)(ba) Bankruptcy Act

Assets which can be sold or distributed by the trustee (divisible property). S116(1) Bankruptcy Act
include:

- Houses, apartments, land ,farms

- Cars, trucks motor bikes

- Shares and other investments

- Cash deposits

- Tax refunds for monies earned prior to bankruptcy

- Antiques, jewelry

- Business assets

- Monies owed to you

- Leaseholds, licenses, patents

- Livestock or farm crops

- Beneficiary under a deceased estate (under certain circumstances)

- Lotto wins

Debt Repayment

The following debts are still required to be paid during bankruptcy:

- Penalties or fines imposed by a court

- Car accident damages claims

- Student assistance/supplement loans

- New debts incurred after bankruptcy commences

In addition to these debts you may be required to make income contributions based on your current level of income. This is determined by the income limits outlined on the AFSA website.

The following debt are still required to be paid after your bankruptcy:

- Child support debts

- Maintenance

- Debts incurred by fraud

- Accumulated HECS and HELP debts

- Court fines


Annulment of Bankruptcy

Individuals are discharged from their bankruptcy after 3 years unless the trustee believes they have failed to fully co-operate, in which case the bankruptcy can be extended to a maximum of 8 years.

A bankruptcy can be annulled within the 3 year period if:

- Creditors are repaid in full. S153A of the Bankruptcy Act

or

- An equitable agreement is reached with the creditors in which a majority of the creditors vote and a 75% majority is achieved. S73 of the Bankruptcy Act

or

- The bankruptcy is annulled by the court. S153B of the Bankruptcy Act