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It’s easy to get confused when it comes to bankruptcy, as the term is often thrown around when referring to a business or person running out of money.
Bankruptcy is a legal process releasing an individual from their debts and providing relief from insolvency.
WHAT IS BANKRUPTCY?
Bankruptcy is a term that’s often misinterpreted, as many people think of it as the same as insolvency. However, it’s quite different. While insolvency is a financial state you reach when you’re unable to pay your debts, bankruptcy serves as a resolution to insolvency.
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.
The consequences of bankruptcy are often quite serious, however, as there will be a record listed on the National Personal Insolvency Index. What’s more, along with your assets, any income you earn over a certain threshold could be recovered. There will also be an investigation of your financial affairs. Get in touch today for free advice.
Bankruptcy can have serious consequences that are worth considering before you make any decisions.
There are no one-size-fits-all solutions when it comes to money. Our experienced team can help to find the best options for your situation and support you every step of the way.
Bankruptcy doesn’t mean failure. Our team can help you find the right path to get your finances back on track. For expert advice and help, get in touch.
What is the difference between Bankruptcy and Liquidation?
People generally set up their business as a company, seeking 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 generally 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 personally responsible to pay these debts under the guarantee.
Am I going Bankrupt when I Liquidate my Company?
Secondly, if you have significant personal liabilities you may need to consider bankruptcy. But in the end, bankruptcy should be considered your last resort.
If you go Bankrupt, what happens to my Company?
Is Bankruptcy the right option for me?
What are the consequences of 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; and
- 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 long does Bankruptcy last?
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