Contemplating Bankruptcy?
If you feel like you are drowning in debt and can see no other way out, bankruptcy may be an option for you. Prior to considering bankruptcy it is important to speak to O’Toole Lawyers to find out the advantages and disadvantages of entering into bankruptcy.
The advantages of bankruptcy are that once you are a bankrupt, most of your debts are written off. Obviously, any debts you incur after you have been made bankrupt, will not be written off.
Further, certain debts are never written off in bankruptcy, such as child support and child maintenance debts, unliquidated damages, penalties, and fines imposed by a Court, amounts payable under the proceeds of crime, certain student debts, and some ATO debts.
All other debts incurred prior to the date of bankruptcy will be written off. This also means that creditors and debt collectors will stop contacting you once you have entered into bankruptcy – they will need to deal with your Trustee.
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Debtor’s Petition – going bankrupt voluntarily
When you enter into bankruptcy via a Debtor’s Petition, a Trustee will take over your affairs. To ensure that your bankruptcy lasts the minimum amount of three (3) years and one (1) day, you must:
- communicate with your Trustee, including providing all the details of your debts, income, and assets;
- keep your Trustee notified as to your residential address and any change in your name; and
- surrender your passport to the Trustee. If you do need to travel overseas, the Trustee may release your passport, usually if there is a good reason for your travelling overseas and if you have purchased a round ticket.
If you do not assist the Trustee in bankruptcy, the Trustee can extend your bankruptcy period to more than three (3) years and one (1) day.
Whilst you are bankrupt, the Trustee in bankruptcy may sell off some of your assets to part pay or payout your debts. This could include the family home, even if the family home is held in the name of the bankrupt and another.
Also if you earn over a prescribed amount then you will need to financially contribute during the period of your bankruptcy.
A bankrupt is usually entitled to keep a car, or a motorcycle used mainly for transport up to a certain value. Further, tools of trade which are used to earn an income are protected to a certain value.
Whilst a bankrupt, there are certain things that you are not allowed to do, such as:
- attempt to travel overseas without the consent of your Trustee;
- obtain credit without informing the credit provider that you are an undischarged bankrupt. Obtaining credit can even include, for example: purchasing furniture on a hire purchase agreement;
- you are not able to be a director of a company; and
- if you are a bankrupt and a professional you may lose the right to practice that profession;
- if you hold a builder’s licence or a real estate licence, you may lose that licence.
Whilst your name is forever listed on the National Personal Insolvency Index as a bankrupt, your bankruptcy is only recorded on your Consumer Credit Report for a period of five (5) years from the date of bankruptcy or two (2) years after the end of the bankruptcy, whichever is later.
Whilst bankruptcy can be a lifesaver for those drowning in debt, it must not be entered into lightly.
There are other possible avenues to explore rather than entering into bankruptcy and they include a Part IX Agreement, or a Personal Insolvency Agreement. Please speak to O’Toole Lawyers about your options.
Avoiding Bankruptcy
For some people, especially professionals and company directors, it is important to avoid bankruptcy and utilise other strategies to get out of debt.
The most important thing to do if you wish to avoid bankruptcy is to act quickly.
Apart from presenting your own Debtor’s Petition, the main way you can be declared a bankrupt is if there are Court proceedings and a Judgment against you.
If you don’t defend the Court proceedings a default Judgment can be entered against you. You are then served with a Bankruptcy Notice and then a Creditor’s Petition.
Do not wait until you are served with a Creditor’s Petition to act. The earlier you act, the better your options are.
If you are ever served with Court proceedings, see O’Toole Lawyers immediately as the earlier we are engaged, the more options we can explore on your behalf.
