The first thing that you need to know if you’re considering what happens when you declare bankruptcy in Australia is that you’re not alone!
Last year 28,000 individual Australians declared themselves bankrupt. Close to 80 people every single day of the year. This is a significant amount of people… There’s a lot of misinformation in the market – what applies to you? And, what happens when I’ve declared bankruptcy.
First you need an understanding:
What is Bankruptcy?
Bankruptcy is simply a legal way to release you from your debts. You can either declare voluntary bankruptcy or can be forced into bankruptcy by the court. This process is called involuntary bankruptcy.
The main differences between the 2 are often time, money, and stress. Involuntary bankruptcy has court appearances, potential sheriffs knocking on the door, harassment and if you were involved in a company that folded the potential for criminal insolvent trading charges.
Always, the best way to go about your situation is to take control and make the decisions so that they benefit you. Rarely when forced into a situation is it the best for you… So take control!
Now after you have taken control and are determined to help your situation, you need to start looking at the eligibility of declaring bankruptcy.
Are you Eligible to declare bankruptcy in Australia
With bankruptcy there’s only 2 requirements
- You are unable to repay your debts which classifies you as insolvent
- You are residing in Australia
There used to me a minimum amount of debt you used to have to owe before being able to declare bankruptcy in Australia, however not anymore. There is no minimum, so what it comes down to is your personal circumstances and how the debt is affecting you.
If you’re currently in a Part IX debt agreement you cannot declare bankruptcy while you have an active agreement in place as it’s part of the bankruptcy act. If you are in a debt agreement chances are that you will be much better declaring bankruptcy. You can check your eligibility here
What are the consequences of declaring bankruptcy
Firstly seek advice – you need to fully understand how these consequences impact you.
You will have a trustee that manages the bankruptcy
- The trustee is simply a person or entity that will manage your bankrupt estate. They ensure you adhere to your obligations under the bankruptcy act and also liaise with your creditors. The trustee is entitled to request any information they need to determine you are adhering to your obligations which includes bank statements etc.
Bankruptcy might affect your income
- There is a set threshold
# of dependants to income
- 0 – $59,031
- 1 – $69.657
- 2 – $74,970
- 3 – $77,921
- 4 – $79,102
- 5+ $80,283
If you’re over these figures (net / after tax) you will have to start paying 50% above this amount to your bankruptcy trustee.
Certain debts aren’t covered
There are a number of debts that aren’t covered in bankruptcy – most of yours will be, however if you have any of the following debts you should note that you will still have to repay these after the bankruptcy is accepted
- HECS / FEE Help education loans
- Child support arrears
- Parking infringements and sper debts
- Debts taken out in fraud
All other debts you will be released from
Can I travel overseas when bankrupt
Yes you can – there’s a common misconception that you cannot leave the country and your passport will be confiscated. No, that’s not the case.
What will happen though is that if you wish to travel overseas in your bankruptcy period you must gain approval from the trustee. This is done through an application, we haven’t had anyone declined for travel so it’s pretty simple and straight forward. However, it does cost $150 each application for overseas travel.
It’s important to notify your trustee, if you don’t you can be in breach of your bankruptcy obligations and your trustee may extend your bankruptcy term. So at all times it is very important to follow the obligations, this is why you need to seek professional advice not only to lodge the bankruptcy but to ensure you understand the obligations.
Will my credit rating be affected
Yes it will – in Australia bankruptcy will last for a period of 3 years + 1 day. If you have stuck to your obligations then you will automatically be discharged from your bankruptcy.
There will be a bankruptcy placed onto your credit file as an “undischarged bankruptcy”. Your credit score will reduce to below 100. This will place you in a range that it’s not likely you can get any type of credit for the duration of the bankruptcy.
After you’re discharged your credit score will start to improve dramatically – however, the discharged bankruptcy period lasts for 2 years so you will still have an adverse credit rating until the completion of the 2 years after bankruptcy discharge or 5 years in total. After this your credit report will go back to normal.
Will I lose my assets
This depends, the assets you are able to keep are the following
- Household goods and furniture
- Tools of trade used to earn an income
- Vehicle up to $8,000 value (some other acceptable options) – enquire to find out
If you have property, the trustee can sell this to recoup funds for the creditors. You must disclose all assets at the application stage – the trustee can run ownership searches so it’s best to be truthful rather than have a fraud conviction.
If you want to keep your house there are ways you can do that. It will all depend on the amount of equity you have in the property and the way it’s ownership is structured.
If you would like to know if you can keep your property or want to complete our Free online Bankruptcy Evaluation – fill out the below.