If you are having difficulties managing your personal debts, bankruptcy may be your best option for a fresh start
Bankruptcy is a formal process that is in force for a period of three years and one day, and may be commenced voluntarily via a process called a ‘debtor’s petition’. This is a formal application an individual submits to the Australian Financial Security Authority (AFSA) to voluntarily declare bankruptcy when they can no longer meet their debt obligations.
Upon commencement of your bankruptcy, you are discharged from the vast majority of your personal debts, which means relief from the pressure of managing payment plans and communicating with your creditors.
However, you will face some restrictions and considerations during the term of bankruptcy. They are:
Your divisible property (i.e. your assets) is made available to the creditors of your estate; however you are usually able to retain some cash at bank, your necessary household furniture and effects, a motor vehicle (or equity in a motor vehicle) and tools of trade; however statutory limits apply to the value of these items.
You may be liable to pay income contributions during the term of your bankruptcy, depending on your level of income and whether you have any dependents.
You will need the consent of your Trustee in Bankruptcy before travelling internationally.
If you receive an inheritance or win lotto during your bankruptcy, these assets and funds are made available to your creditors.
Your name will appear permanently on the National Personal Insolvency Index.
Personal vs Business Bankruptcy: What's the Difference?
Distinguishing types of bankruptcies can be difficult. Personal bankruptcy and business bankruptcy are distinct processes that address the financial distress of either individuals or companies.
In bankruptcy, an individual declares inability to meet personal debt obligations, seeing the appointment of a trustee who manages the individual’s assets to repay creditors. This process often results in the discharge of most unsecured debts, providing the individual with a fresh start financially.
Business bankruptcy involves a company—considered a separate legal entity—undergoing insolvency proceedings. In this scenario, a liquidator is appointed to oversee the company’s assets and liabilities, aiming to repay creditors either through restructuring or liquidation of assets.
It’s important to note that, in most cases, company directors are not personally liable for the company’s debts unless personal guarantees have been provided or there has been misconduct. Therefore, while both processes aim to resolve insolvency, personal bankruptcy focuses on individual debt relief, whereas business bankruptcy addresses the financial rehabilitation or dissolution of a corporate entity.
HLB Mann Judd Insolvency WA offers assistance for both bankruptcy and corporate insolvency. If you are confused as to how your situation would be categorized, please contact us.
How can HLB Mann Judd Insolvency WA help?
Despite the negative stigma associated with bankruptcy, the process is a way for an individual to move forward confidently. With professional guidance, you will be able to manage the implications and leave behind a past of unmanageable debt.
Below are the forms required for lodgement of a Statement of Affairs and a Debtor’s Petition with the Australian Financial Security Authority.
If you feel bankruptcy may be appropriate in your situation and would like to speak with us further, please contact HLB Mann Judd on 08 9215 7900 for a cost and obligation free consultation.
FAQs
Should I go bankrupt? Is bankruptcy my only option?
Bankruptcy is not your only choice and, depending on your circumstances, a personal insolvency agreement might be more suitable. It is essential to consult with a financial advisor or insolvency professional to explore all available avenues before proceeding. For help with this decision, you can contact HLB Mann Judd on 08 9215 7900 for a cost and obligation free consultation.
Can I go bankrupt and keep my house and car?
Whether you can retain your house and car during bankruptcy depends on several factors. Considerations for vehicles include:
- How much equity you have in the vehicle.
- Whether you will continue to make necessary loan repayments.
- Whether the vehicle is your primary means of transport.
Regarding your home, if there is significant equity, the trustee may consider selling the property to repay creditors.
Each bankruptcy situation is unique, so it is crucial to seek personalised advice.
Does going bankrupt affect your credit?
Yes, declaring bankruptcy will impact your credit. The bankruptcy will be recorded on your credit report for five years from the date you become bankrupt or two years from when your bankruptcy ends, whichever is later. This can affect your ability to obtain credit during the bankruptcy period.
Do you lose your bank account if you go bankrupt?
No, you do not automatically lose your bank account when you declare bankruptcy. However, the funds in your accounts may be accessible to the trustee to distribute among your creditors. It’s advisable to inform your trustee about all your financial accounts and seek guidance on managing them during the bankruptcy period.
Can I avoid bankruptcy?
There are steps you can take to protect yourself from bankruptcy, you can read about them in our article ‘Can I Avoid Bankruptcy?’
I am going bankrupt as a sole trader, what can I do?
As a sole trader, your personal and business finances are legally intertwined and facing bankruptcy can impact both.
Declaring bankruptcy can provide relief from unsecured debts, such as credit cards and personal loans, but it does carry implications. During bankruptcy, you can continue operating your business; however, you must trade under your own name or disclose your bankrupt status to all parties you engage with. Additionally, if your after-tax income exceeds a certain threshold, you may be required to make contributions toward your debts.
Given the complexities involved, it is recommended to seek professional advice and maintain accurate financial records. If you would like to speak with us to gain clarity about your situation, you can contact us on 08 9215 7900.
