If you’re struggling to manage your money and keep up with debts, Bankruptcy can allow you to get your life back on track. It’s also a serious commitment with long-lasting effects, so you should seek professional advice before making any decisions.
The team at Business Savers understands that Bankruptcy is a last resort. When you work with us, our experienced advisors will assess your situation and develop a tailored approach that can help you get your situation under control. If you’re worried about your finances or with managing debts, we can provide expert advice that helps you through Bankruptcy.
Bankruptcy is the formal process of declaring that you are unable to pay your debts. Declaring Bankruptcy frees you from most types of debts and gives you a chance to start afresh. There are two main types of Bankruptcy in Australia:
- Voluntary Bankruptcy (also called a Debtor’s Petition) is where you recognise that you will be unable to pay your debts. There is no minimum amount of debt to be eligible for Bankruptcy, and there are no application fees.
- Sequestration Order (also called a Creditor’s Petition) is where one of your creditors applies to the Court to make you Bankrupt. A creditor can only submit a Sequestration Order if you owe $10,000 or more and if a bankruptcy notice has expired.
Bankruptcy may be the right choice if you consistently struggle to repay your debts on time. You should always consult a financial advisor before declaring Bankruptcy.
Bankruptcy comes with serious consequences, and there are other solutions available if you’re struggling. A professional can assess your situation and help you figure out whether you should pursue Bankruptcy or consider alternatives like Personal Insolvency Agreements.
You may choose to declare Bankruptcy if you become unable to pay your debts when they are due. These are some of the common warning signs that your financial situation may result in bankruptcy:
- Being unable to pay your debts on time
- Being unable to pay debts at all
- A lack of savings, or spending your savings to repay normal debts
- Regularly needing to borrow money from friends and family
- Being rejected on new credit applications
- Receiving late payment notices from creditors, debt collectors or solicitors
- Receiving letters of demand from your creditors
The most important thing about Bankruptcy is that it gives you a reprieve from creditors. If you’re frequently hearing from creditors or debt collectors, it may be time to consider Bankruptcy or another personal insolvency solution.
Declaring Bankruptcy frees you from most debts and can help you get your life back on track. But it also comes with serious, lasting consequences that can affect you for years to come. The major consequences of Bankruptcy include:
- Your name, address and details will be permanently recorded on the National Personal Insolvency Index (NPII)
- Your ability to obtain new credit will be affected
- Your assets may be sold, including your house and other property
- You will need your Trustee’s permission to travel overseas
- You may need to make compulsory repayments towards your debts
- Your ability to run a business will be restricted
Bankruptcy frees you from most debts, but some debts (such as HECS and child support obligations) won’t be extinguished. You will still need to repay those debts, even after your Bankruptcy has ended.
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Frequently Asked Questions
How to Declare Bankruptcy
To declare Bankruptcy you need to complete a Bankruptcy Form. This can be done on the Australian Financial Security Authority (AFSA) website, or a Trustee (such as Business Savers) can do this on your behalf. You’ll need to complete a Consent to Act Declaration to authorise your Trustee to submit your Bankruptcy application.
When Does My Bankruptcy End?
Bankruptcy lasts for 3 years and 1 day in most cases. The process may be extended up to a term of 8 years if you don’t meet your obligations during the process. Your Trustee may apply to have your Bankruptcy period extended if you fail to:
- Provide information you are asked for
- Disclose all income streams
- Disclose all assets and debts
- Make compulsory repayments
- Explain your expenses
Does Bankruptcy Affect My Credit Score?
Yes, Bankruptcy can significantly affect your credit score and your ability to obtain new finance. As soon as your application is approved, your credit score will drop and your details will be recorded on the NPII. Banks and lenders will take both of these things into account when considering new credit applications. If you take out new finance after declaring Bankruptcy, that debt won’t be extinguished at the end of the process.
What Happens During Bankruptcy?
When you declare Bankruptcy, an independent Registered Trustee will be appointed to assess, recover and sell your assets. The proceeds of these sales will be used to repay your debts (partially or in full). Your Trustee will also investigate your financial affairs to make sure your creditors receive the money they’re owed.
At the end of the Bankruptcy period, you are freed from most existing debts. Throughout the process, creditors will be prevented from continuing or commencing legal action against you, and all correspondence will have to go through your Trustee. This can be a major relief if you have been hounded by creditors or debt collectors.
What Happens to My Belongings During Bankruptcy?
During Bankruptcy, a Trustee will assess, recover and sell your assets in order to satisfy your debts. That means things like real estate, vehicles, jewellery and major assets can be sold. However, you are allowed to keep ordinary household items like your furniture, computer and appliances. You can also keep things such as cars and tools used to make a living if the value is below AFSA’s set amounts.