Deciding whether bankruptcy is the right course of action for you is a difficult decision and seeking professional help will assist you to make the right decision.
Whilst it can allow you to avoid paying most debts that you might have, bankruptcy does come with consequences.
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What happens when you are made bankrupt?
A trustee is appointed to manage your bankruptcy. They work with you and your creditors (those that you owe money to) to achieve a fair and reasonable outcome for everyone.
You will have an obligation to provide information to your trustee, including changes to your circumstances. This may involve supplying books, bank statements and other documents that the trustee asks you to provide.
When you apply for voluntary bankruptcy, you are able to nominate a registered trustee of your choice.
What happens to my assets?
The first thing you must do is to declare any assets you have when you apply for bankruptcy as well as any you receive during bankruptcy.
When you become bankrupt you are entitled to keep ordinary household goods, tools up to (currently) $3,700 used to earn an income and vehicle(s) with a value up to (currently) $7,800.
Your trustee can sell other assets including your house and property and you aren’t allowed to dispose of any property belonging to the trustee.
How long will my bankruptcy last?
For most people, it will last for 3 years and 1 day from the day you file your statement of affairs or when your bankruptcy application is accepted.
How will it affect my income?
You will need to let your trustee know of any changes in your income or employment, such as changing jobs, a change in your income or if you stop working.
There is no limit to the amount of income that you can earn or save (in an ordinary savings account) while you’re bankrupt. However, if your after-tax income exceeds a threshold amount will likely have to make compulsory payments to your trustee. This amount changes based on how many dependants you have and may also change in the future.
For example, based on the current rates and if you have no dependants, you will likely have to pay to your trustee 50% of anything you earn above $55,837.60 (after tax has been deducted).
Your trustee can use these contributions to help repay your debts.
What about overseas travel?
You will need to seek permission from your trustee to travel overseas.
What about getting credit during my bankruptcy and in the future?
If you apply for credit over (currently) $5,681, you must let the credit provider know of your bankruptcy.
You should also be aware that credit reporting agencies keep a record of your bankruptcy for the later of 5 years from the date you became bankrupt or 2 years from when your bankruptcy ends.
Also, your name will permanently appear on the National Personal Insolvency Index; is a searchable public register listing insolvency proceedings in Australia.
Are there any other options I can consider?
There is a very useful government website, www.afsa.gov.au, that compares the various options that might be available to you other than bankruptcy.
Declaration of intention to present a debtor’s petition (DOI)
This provides you with temporary relief from being pursued by creditors while you seek help and decide what to do.
This is a binding agreement between you and your creditors to pay a sum you can afford.
Personal insolvency agreement
This is an agreement between you and your creditors to pay an agreed amount in instalments or lump sum.
As always, talk to your accountant who can help you. The information above is general in nature and there may be certain things that do or don’t apply to you in your specific circumstances.
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