What happens when you declare Bankruptcy?
Are people chasing you for debts you cannot pay? Are you considering declaring bankruptcy?
Firstly, what is Bankruptcy?
It is a process which, when followed correctly, could release you from most debts and allow you to essentially start again.
Bankruptcy can begin by the following two methods:
- you make a voluntary declaration that you are unable to pay your debts; or
- by way of Court Order, usually sought by a creditor to whom you at least $5,000.
To voluntarily apply for bankruptcy, you must meet the following requirements:
- you are unable to pay your debts when they fall due (which we call insolvent); and
- you are currently in, or have a business or residential connection to, Australia.
This means you can still be declared bankrupt even if the equity in your assets exceeds the debts you owe.
To apply for bankruptcy, you will need to complete a Bankruptcy Form and submit it to the Australian Financial Security Authority (AFSA).
What is a Trustee?
A person, usually an official from AFSA or a suitably qualified accountant, who is appointed to you during the course of your bankruptcy. They work closely with both you and your creditor to reach a fair and reasonable outcome for everyone.
What do Trustees do?
Usually the first thing they do is notify your creditors that you have become bankrupt so that, in most cases, they stop contacting you directly.
Whilst they are your trustee, you have an obligation to fully disclose information regarding your assets, income and liabilities. If requested, you must deliver any bank statements, tax returns and other sensitive documents. If you are considering bankruptcy, you should know that any failure to comply with these obligations can result in serious penalties, including imprisonment.
Any property or assets obtained before becoming bankrupt, that are not subject to any exclusions, are controlled by the trustee. Depending on the circumstances, they may decide to sell certain assets, or require you to make scheduled payments if your income exceeds a certain amount.
What steps a trustee takes to pay outstanding creditors will depend largely on your financial position. The key point is that trustees have numerous and varied powers in relation to your assets and affairs.
So, what happens when you declare bankruptcy?
Along with the appointment of a trustee bankruptcy could affect you in the following ways:
- You will be disqualified from being the director and/or manager of a company.
- Certain professional and/or licencing bodies may withdraw or prohibit you from holding certain professional qualifications or licences. We suggest you make your own enquiries as to whether this affects you.
- You will not be able to travel overseas without the express written permission of the appointed trustee. In some cases, the bankrupt person’s passport is surrendered.
- You must disclose your bankruptcy when obtaining credit of $5,882 (as of the date of this article) or more during the bankruptcy period.
- Your name will be on the National Public Insolvency Index forever, although it will state whether the bankruptcy is current or discharged. Credit agencies usually maintain a record for up to 5 years (sometimes long) so your ability to obtain credit could be affected until then.
- You will be unable to maintain any current Court proceeding claims without the support of the trustee.
Are there alternatives to bankruptcy?
In short, yes there are but each of them has their own serious consequences. 
How can DSA Law help?
If you need help deciding whether bankruptcy is right for you, or if your current asset structure is preventing you from paying your debts when they fall due, please Contact Us or one of our Insolvency Lawyers at DSA Law on (03) 8595 9580.