Bankruptcy

Bankruptcy   

In extreme circumstances, a professional debt management company may suggest voluntary bankruptcy.  This releases you from most of your debts and lets you make a fresh start.  Your debts are erased, and creditors cannot take legal action against you.  They must also stop contacting you. Any creditor who has a garnishee order on your income or bank account must cease all claims. 

Most debts are eliminated when you declare bankruptcy, including credit card debts, unsecured personal loans, personal tax debts, GST debts, debts for disconnected telephone and electricity accounts, medical debts, old rentals on furniture or appliances, repossessed car debts, school fees, and Centrelink debts.   

Child support and maintenance, fines and penalties imposed by a court, student loans, HECS debts, and debts incurred after going bankrupt will still have to be paid. 

You will be permitted to keep all normal household items (furniture, appliances, musical instruments, linen, kitchenware, etc), your car (up to a wholesale value of about $6500 or $12,300 if the car is owned in joint names), tools of trade or property used to earn an income up to about $3,150 in value (assessed at the value you would likely get for them in a 'fire sale').  

If you have  a loan on your car, you can still keep the car when you go bankrupt as long as you continue to make payments on the loan. 

Bankruptcy is noted on your Credit Reference Record, and remains there for seven years.   

If you declare bankruptcy, you will be an undischarged bankrupt for three years.  After that, you are free to do as you wish, but for those three years there will be limits on your after-tax earnings, depending on the number of dependant you have.   Check this out   Is there a life before or after bankruptcy?

Protected Assets and Income 

Some money is protected from creditors when you declare bankruptcy.  For example, a personal injury compensation payout, or money bought with such a payout cannot be touched by your credits.  Superannuation moneys and payments made to your superannuation fund during the period of your bankruptcy are also protected, up to the reasonable benefits limit.  Any money or assets bought with superannuation money are also protected.

If you are entitled to any tax refunds during the period of your bankruptcy, the tax office may retain the money if you had a tax debt.  Otherwise, you may receive the refund, but it will be counted as income.   

Your Centrelink benefits are protected during bankruptcy, even if you owe money to Centrelink. 

Operating a Business as a Bankrupt 

You can operate a business while you are an undischarged bankrupt, but you must trade as a sole trader under your own name.  You cannot operate a business through a company.  

Overseas Travel during bankruptcy 

There will be special requirements of notification if you wish to take an overseas trip while an undischarged bankrupt.  You will need to obtain written permission from your trustee to leave the country. 

Other Rights and Responsibilities 

There are strict limits on borrowing money or buying goods on credit while an undischarged bankrupt.  If you incur debts of more than about $4600 (indexed) you must inform the lender that you are an undischarged bankrupt.  You are also required to advise your trustee of any change of name or address.  There may be other matters you are required to discuss with your trustee.  

Cancelling your Bankruptcy 

If you are able to pay out all of your debts, including costs, you can have your bankruptcy cancelled. 

Bankruptcy should generally be regarded as a last resort, when debt overwhelms and there is no other solution.  But it can be a way to make a fresh start.  It is important to remember, though, that the sooner you seek help with debt problems, the more likely it is that satisfactory solutions can be found.  Tell your creditors immediately if you are struggling to pay them.  Seek professional help early.   

Most importantly, develop the habit of spending less each week than you earn, and putting a little money aside in a high interest savings account every single payday. Make a budget, and stick to it. Set financial goals and work towards them, rewarding yourself with small treats when you reach milestones. Pay bills on time and borrow and use credit cards responsibly. Work towards building a credit record you can be proud of, and loan funds will be accessible at competitive rates when you need them. If you think you need help in this area use the form below.