If you are struggling financially and considering bankruptcy, it is important to understand what this process entails. Bankruptcy is a legal process to help people who can’t pay their debts get a fresh start.
In this article, we will discuss the signs indicating you need to file for bankruptcy, ways to improve your financial situation, and the role of the bankruptcy trustee. We will also outline the consequences of becoming bankrupt and how our team at Corporate Lifeline can help you through this difficult time.
What is Bankruptcy?
Bankruptcy in Australia is a legal process providing relief to individuals who are unable to repay their debts. Bankruptcy is regulated by the Bankruptcy Act, which sets out the grounds on which an individual can become bankrupt, the process to be followed and the role of the bankruptcy trustee.
The Australian Financial Security Authority (AFSA) manages the application of the bankruptcy process and related rules. Their website includes advice and guidelines for potential bankrupt individuals and creditors.
If an individual becomes bankrupt, they will be automatically placed into bankruptcy under the supervision of a bankruptcy trustee. The bankruptcy trustee is responsible for administering the bankruptcy and will investigate the individual’s financial affairs. The bankruptcy trustee may also take action to recover money or property from the bankrupt individual.
The Signs You May Need Bankruptcy
The signs you may need to file for bankruptcy include:
- You are struggling to make ends meet and are unable to keep up with your debts.
- You are receiving calls or letters from creditors demanding payment.
- You have been using credit to pay for essentials, such as food or petrol.
- You have been selling your belongings or borrowing money from family and friends.
- You are feeling overwhelmed and stressed about your financial situation.
If you are experiencing any of these signs, it is important to seek advice from a qualified professional. Bankruptcy is a difficult process, but there are ways to improve your financial situation and get a fresh start. Corporate Lifeline provides confidential financial advice to individuals who are considering bankruptcy or who have already filed for bankruptcy protection. Call us today to find out how we can help you.
How to Improve Your Financial Situation Without Bankruptcy
If you are experiencing financial difficulties and are considering bankruptcy, there are a number of things you can do to improve your financial situation:
- Take on extra work or start a side hustle.
- Consider selling some of your belongings to raise money.
- Negotiate with creditors to come to an agreement about repayment arrangements.
- Cut back on expenses and find ways to save money.
One of the best ways to improve your financial situation is to cut back on expenses and find ways to save money. Here are a few tips:
- Cancel cable and Netflix subscriptions
- Eat out less and cook at home more often, which can save you more than $50/week.
- Avoid unnecessary purchases and stick to a budget.
- Invest in a good quality pair of shoes and clothes, rather than buying cheap, disposable items.
- Seek financial advice from a qualified professional.
- Apply for government assistance programs, such as Centrelink.
Alternative options
If you have unmanageable debt, the AFSA website lists bankruptcy and the following as insolvency options for you
- Temporary Debt Protection
Temporary debt protection enables a 21-day period of safety from enforcement action which may result in garnishing wages or seizing goods. Use this reprieve as an opportunity for forward progress: get financial guidance, talk with creditors and explore any potential formal insolvency solutions. - Debt Agreements
A Part IX (9) debt agreement is a legally binding contract between yourself and creditors, allowing you to manage your financial obligations in a way best for everyone involved. - Personal Insolvency Agreements
A PIA – or Part X (10) agreement is a legal way to negotiate with your creditors, enabling you to manage what’s owed more easily. It works by appointing an independent trustee who makes sure any proposal made meets the criteria for both parties involved; it may include regular payments over time, or even one lump sum payment if agreed upon by all concerned.
What Happens During Bankruptcy?
When an individual files for bankruptcy, they are known as bankrupt. The Bankruptcy trustee is responsible for investigating the bankrupt individual’s situation and for distributing assets to creditors. Bankruptcy proceedings can involve:
The appointment of a Bankruptcy Trustee
The Bankruptcy Trustee is responsible for managing the Bankruptcy process. They will:
- Investigate the bankrupt’s financial affairs.
- Distribute assets to creditors.
- Sell the bankrupt’s assets to repay their debts.
- Manage the Bankruptcy proceedings.
A review of the bankrupt’s financial position
A Bankruptcy Trustee will review the bankrupt’s financial position and investigate their assets and liabilities. The Bankruptcy Trustee will also distribute assets to creditors. Bankruptcy proceedings can involve:
- A meeting of creditors, where the Bankruptcy Trustee will present the bankrupt’s financial statement.
- The Bankruptcy Trustee may request the bankrupt provide documentation or information about their financial situation.
- The Bankruptcy Trustee may take possession of the bankrupt’s assets.
- The Bankruptcy Trustee may sell the bankrupt’s assets to repay their debts.
An investigation into the activities prior to bankruptcy
The Bankruptcy Trustee will investigate the financial activities likely to have led to bankruptcy. This may involve:
- Investigating the bankrupt’s financial affairs.
- Investigating any transactions or payments made in connection with the bankruptcy.
- Interviewing the bankrupt and any other witnesses.
- Reviewing any documents or records related to the bankruptcy.
The Bankruptcy Trustee will use this information to determine whether any actions taken by the bankrupt led to their insolvency.
A Court Order approving or rejecting Bankruptcy applications
When an individual files for Bankruptcy, they must submit an application to the Court. The Bankruptcy Trustee will investigate the bankrupt’s financial affairs and present a report to the Court. The Court will then decide whether to approve or reject Bankruptcy applications.
A Bankruptcy Agreement
Bankruptcy Agreements allow creditors to agree to certain terms and conditions, such as the repayment of debts. Bankruptcy Agreements can be negotiated by the Bankruptcy Trustee or the bankrupt.
Distribution of assets
The Bankruptcy Trustee will distribute the assets of the bankrupt to creditors.
Discharge of the bankruptcy
The Trustee will arrange for the Bankruptcy to be discharged after 3 years.
What assets may be sold?
The Bankruptcy Trustee has the authority to sell certain assets of the bankrupt in order to repay creditors. These assets may include:
- The family home;
- Cars and other vehicles;
- Furniture and household items;
- Business assets; and
- Investments and savings.
What assets may not be sold?
The Bankruptcy Trustee does not have the authority to sell certain assets of the bankrupt, which may include:
- School books and other educational materials;
- Tools of the trade;
- Household items and furniture of a reasonable value;
- A vehicle to the value of $8,550, at the time of writing;
- Personal items, such as clothing and jewellery;
- Superannuation and life insurance policies; and
- Bankruptcy does not affect child support payments.
Consequences of Becoming Bankrupt
The consequences of bankruptcy are significant and include:
- Loss of control over one’s financial affairs;
- The inability to borrow money;
- Inability to commence or continue civil proceedings without leave of Court;
- Forfeiture of any assets above a prescribed value;
- Foreign travel is only permitted with written permission from the bankruptcy trustee;
- A criminal conviction for making false statements in connection with one’s bankruptcy.
What happens after the Bankruptcy is discharged?
After the Bankruptcy is discharged, the Bankruptcy Trustee will no longer have any authority over the Bankruptcy. The Bankruptcy will be listed on the National Personal Insolvency Register for a period of 5 years.
How to Choose the Best Bankruptcy Trustee In Sydney
When considering filing for bankruptcy, choose the right trustee to help guide you through the process. Bankruptcy trustees are responsible for managing the bankruptcy and distributing assets to creditors. When choosing a trustee, consider:
- The trustee’s experience and qualifications
- How easily you can communicate with the trustee
- Whether the trustee offers financial advice
Factor in your own needs and preferences when making a decision. For example, if you would prefer to have a female trustee. If you need financial advice, then you should choose a trustee who offers or has colleagues able to provide this service.
How Corporate Lifeline Can Help You
If you are struggling to repay your debts, Corporate Lifeline can help. Our team of experts can provide you with financial advice and guidance to help you get back on track. We will assess your financial situation and suggest solutions and options for you.
We understand times may be tough, but we are here to help you every step of the way. Contact us today for more information.