“If you are unable to pay your debts and cannot come to suitable repayment arrangements with your creditors, you may voluntarily lodge a petition to become bankrupt (called a debtor’s petition) or a creditor may take action to have you declared bankrupt by order of the Court (called a sequestration order).
Bankruptcy is a legal process that releases a person from almost all of their debts.
You can apply to become bankrupt voluntarily if you have a debt of any amount that you cannot pay. When you are a voluntary bankrupt, a trustee appointed by the Australian Financial Security Authority (AFSA) will manage your financial affairs. A fee may be charged where you have assets or earn above your income threshold amount (see information on current thresholds).
AFSA will advise you of when you are officially bankrupt. They will nominate a trustee to manage your financial affairs within two weeks of when you lodge your application with them. Bankruptcy lasts for three years from the day it is declared.
Creditors who have tried unsuccessfully to recover debts you owe that together total at least $5,000 can force you into bankruptcy. In this situation, a private trustee will manage your financial affairs and charge very high fees for this service.
You can appoint a private trustee. (Ask us how).
The effects of bankruptcy
When you become bankrupt:
- you can keep household goods and personal effects like a television, computer and furniture of reasonable value;
- the fact of your bankruptcy will appear on your credit report for five years and on a public record known as the National Personal Insolvency Index for life (in practical terms though, you will find it difficult to obtain credit for five years, only the same time as for listed bad debts);
- you may lose some of your assets (see next section) including your house and a car worth more than $7,500;
- you can earn an income (a rate of $52,543.40 after tax for a person with no dependants and $66,730.12 for a person with two dependants) however if your after-tax income exceeds the amount applicable to you, you will need to pay contributions to your trustee for your creditors; and
- you may need to continue to pay your Child support, Centrelink and Higher Education debts, and any court fines. Seek advice on this from a financial counsellor.
What happens to your assets when you are bankrupt?
Assets that are safe*
- ordinary household goods such as furniture, a television and a computer
- a car in which you have less than $7,500* equity
- tools of trade to the value of $3,650*
- up to $1,000 in bank accounts (deemed to be for living expenses)
- superannuation, life insurance policies and personal injury compensation payments
Assets you will probably lose
- real estate including houses and land
- cars in which you have more than $7,500* equity
- personal effects such as antiques and luxury electronic items
- tools of trade over the value of $3,650*
- artworks of significant value and some jewellery
- any inheritance, tax refund or winnings
- money in bank accounts in excess of $1,000
* Values are as at August 2014. Information on current thresholds.
What employment restrictions apply to bankrupts?
Director of a company
You cannot be a director of a company or be involved in its management without the permission of the Court during the term of your bankruptcy.
Other employment restrictions
Professional bodies and/or trade associations have certain conditions of membership for the duration of a bankruptcy. There may be restrictions on holding some statutory positions during this period. Consumers should contact the relevant peak body of their trade or profession to see if there are any restrictions during and/or after bankruptcy.
Disclaimer: The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by NR Consulting or any member of the firm for any loss resulting from any error or omission contained above.