Applying for Bankruptcy
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DECLARING BANKRUPTCY
Bankruptcy is a legal process where you are declared ‘unable to pay your debts’, releasing you from some or all of your debts and allowing you to make a fresh start.
WHAT IS BANKRUPTCY?
It’s the legal process for those people who are unable to pay their personal debts when they become due. Once you become bankrupt, your creditors are no longer able to collect debts from you. Your available assets are then sold, and the proceeds are distributed to repay your creditors.
What Debts Are Cleared by Bankruptcy?
Bankruptcy releases you from most types of unsecured debts, including:
- Personal loans
- Business debts (for sole traders)
- Credit card debts
- Some utility bills
- Medical bills
- Overdrafts
- ATO debts
- Unpaid invoices
It does not, however, include secured debts like mortgages or car loans, HECS/HELP loans, court fines and penalties, child or spousal support and maintenance, debts incurred from fraud or illegal activities, and debts incurred after bankruptcy begins.
Consequences of Bankruptcies in Australia
Applying for bankruptcy can have serious consequences that are worth considering before you make any decisions.
There will be a record listed on the National Personal Insolvency Index, and there will also be an investigation of your financial affairs. What’s more, along with your assets, any income you earn over a certain threshold could be recovered.
So, what happens when you declare bankruptcy?
The following is a list of certain restrictions, limitations and obligations imposed as a result of bankruptcy:
- Incapacitated from acting as a director or managing a corporation during the period of bankruptcy
- Certain restrictions on choice of occupation and/or industry associations and licensing authorities may impose restrictions or conditions on membership during the course of bankruptcy
- A debtor is obliged to cooperate with their trustee in bankruptcy
- Restrictions on travelling overseas without the bankruptcy trustee’s prior written consent
- The debtor’s income, employment and business may be affected
- The debtor’s assets may be sold
- A debtor is not released from certain types of debt once they are discharged from bankruptcy, for example, penalties, fines and child support debts
- The debtor’s name will appear on the National Personal Insolvency Index (“NPII”) forever and credit reporting organisations will keep a record of the bankruptcy for up to five years
- A debtor cannot apply for credit or buy goods and services on credit or by cheque during bankruptcy, above a statutory limit (currently $5,882 – updated quarterly), without disclosing their bankruptcy status
How to Claim Bankruptcy The 4-Step Process
Filing for bankruptcy is designed to give you debt relief. This is the standard how to claim bankruptcy process:
Pre-Bankruptcy Guidance
Before lodging an application, you’ll meet with a qualified bankruptcy advisor to review your finances, understand alternatives, and prepare the necessary paperwork.
Lodging the Application
Your bankruptcy petition is submitted to the Australian Financial Security Authority (AFSA). Once accepted, an automatic stay takes effect, pausing most debt recovery actions.
The Trustee Takes Control
A Registered Trustee is appointed to manage your estate. They’ll review your situation, hold a creditors’ meeting if required, and begin selling assets to repay debts where possible.
Discharge from Bankruptcy
After you meet all legal obligations and complete a debtor education course, you receive a Notice of Discharge. Remaining eligible debts are cleared, allowing you to rebuild your financial future.
Get Trusted Bankruptcy Advice & Debt Solutions at Corporate Lifeline
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There is no one-size-fits-all solution when it comes to money. Our experienced business bankruptcy and personal bankruptcy advisory team can help you find the right path to get your finances back on track.
We’ll advise you on how to choose the best options for your situation, and support you every step of the way towards financial recovery and, eventually, financial freedom.
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FAQS
What Is the Difference Between Bankruptcy and Liquidation?
If the company cannot pay its debts, and you can’t either, the company could go into liquidation, and you may become bankrupt. Company liquidation is for businesses, and bankruptcy is for individuals.
People generally set up their business as a company to avoid personal liability for the company’s trading debts and to protect their personal assets if the business fails.
If you operate a business through a company, the company owns the assets of the business and is liable for any debts incurred. You, as a director or shareholder, are not personally liable for the company’s trading debts and other liabilities.
However, if you have signed personal guarantees against any unpaid liabilities of the company, you could be responsible for paying these debts under the guarantee.
Am I Going Bankrupt When I Liquidate My Company?
If I Go Bankrupt, What Happens to My Company?
How Do I Know if Bankruptcy Is Right for Me?
How Long Does Bankruptcy Last in Australia?
Can Creditors Still Contact Me After Bankruptcy?
What Is a Debt Agreement and How Is It Different From Bankruptcy?
A debt agreement lets you have more control of your assets and doesn’t appoint a trustee to take over your finances. However, it will still affect your credit rating and be on your credit file.
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