If the financial burden of managing debts becomes too difficult and onerous, there are some avenues you can consider, but one option for individuals is to declare bankruptcy.
This decision should not be taken lightly due to the number of consequences listed below, however it is an option for some people.
If you think this may be an option for you, your trusted business adviser can assist you in this process and if necessary contact the appropriate insolvency practitioner.
To give you more information on the area of bankruptcy, below I go through what it is, what other options there are and the consequences of declaring bankruptcy.
What is bankruptcy?
Bankruptcy is a legal process where you are declared unable to pay your debts. It can release you from most debts, provide relief and allow you to make a fresh start.
You can enter into voluntary bankruptcy. We refer to this as a debtor’s petition. It’s also possible that someone you owe money to (a creditor) can make you bankrupt through a court process. We refer to this as a creditor’s petition.
Bankruptcy normally lasts for 3 years and 1 day.
Know your options
Bankruptcy is just one formal option available under the Bankruptcy Act to manage your debt. Other formal options include 21 day relief and debt agreements. There are also other options available (such as coming to an agreement with your creditors).
Understand the consequences of bankruptcy
Bankruptcy may have a serious impact on you. Some of the more common consequences of bankruptcy are:
- Bankruptcy may affect your income, employment and business – If you earn over a set amount, you may need to make compulsory payments to your bankruptcy trustee. There may also be some restrictions on your employment and running a business.
- Bankruptcy does not release you from all debts – Most unsecured debts are covered in bankruptcy – this means you no longer have to repay these debts. There are however some exceptions to this.
- It affects your ability to travel overseas – You must request permission from your bankruptcy trustee to travel overseas. It’s an offence to travel overseas without consent in writing.
- Your name will permanently appear on the National Personal Insolvency Index (NPII) – The National Personal Insolvency Index is a searchable public register listing insolvency proceedings in Australia.
- Bankruptcy can affect your ability to obtain future credit – If you apply for credit over a set amount, you must inform the credit provider of your bankruptcy. Credit reporting agencies keep a record of your bankruptcy for:
- 5 years from the date you became bankrupt or
- 2 years from when your bankruptcy ends, whichever is later.
- Your trustee may sell your assets – Your trustee can sell other assets including your house and property. You must not dispose of any property belonging to the trustee. You must declare any assets you have when you apply for bankruptcy and any you receive during bankruptcy.
You are able to keep:
While the decision to declare bankruptcy should not taken lightly due to the consequences outlined above, it is still on an option you may consider necessary to help you out in the longer term.
If you think bankruptcy may be an option for you, please get in touch with BLG Business Advisers so we can assist you in this process. You can contact us online, or by calling (02) 4229 2211.