A Guide to Declaring Bankruptcy in Australia

It's possible that you came across this blog because you are in debt and unable to make your payments. You may be searching for answers or unsure if filing for bankruptcy is the right course of action for you, but you may also be uncertain if you meet the requirements. In the event that you are unable to pay off all of your creditors, you may legally file for bankruptcy. It helps you by relieving your debt obligations and preventing debt collectors from asking about the payments.

However, only individuals, not businesses, are able to file for bankruptcy in Australia. Furthermore, you should be aware of the long-term financial effects of filing for bankruptcy, even though it can release you from debt. That is why we have come up with this article to assist readers in determining if they qualify to file for bankruptcy by breaking down the important factors regarding bankruptcy declaration in Australia.

What is bankruptcy?

Bankruptcy is a legal procedure where you are declared incapable of repaying your debts, according to the Australian Financial and Security Authority (AFSA). It can provide relief from most debts and offer you the opportunity to start over.

Voluntary bankruptcy is an option. You must fill out and submit a bankruptcy form in order to accomplish this. Additionally, a creditor, someone you owe money to, may use the legal system to declare you bankrupt. This is what we call a sequestration order. The typical duration of bankruptcy is three years and one day.

What causes someone to go bankrupt?

A bankruptcy form must be completed and submitted so that an individual with unmanageable debt can voluntarily file for bankruptcy. In addition, if you owe a creditor $10,000 or more, they may apply to have you declared bankrupt through the legal system.

Factors to consider regarding bankruptcy

To file for bankruptcy, there is no minimum or maximum limit of debt or income needed. You can petition to become bankrupt if you are unable to pay your debts and are not eligible for other options. You need to fulfil the following conditions in order to file for bankruptcy:

• Unable to make debt payments
• Citizens of Australia or those with a business or residential relationship with Australia

After your decision to declare bankruptcy, you will need to get the following paperwork ready:

• The Statement of Affairs
• Debtor's Petition

It is necessary to prepare these documents and submit them to the AFSA for approval. All of the creditors you listed in the Statement of Affairs will receive a bankruptcy notification from AFSA upon approval of your application. You can request a decision review by the Administrative Appeals Tribunal (AAT) if AFSA notifies you that your application is denied.

Who is a trustee for bankruptcy?

A trustee is appointed when you file for bankruptcy. One individual or organisation that oversees your bankruptcy is a trustee. A registered trustee or the Official Trustee (AFSA) may be the latter. Nominating a registered trustee of your choosing is another option.

What are the types of debts covered by bankruptcy?

The following debt categories will be covered by bankruptcy:

• payday loans and unsecured personal loans
• bills for phone, internet, gas, and electricity
• store cards and credit cards
• bank accounts that are overdrawn and unpaid rent
• legal, accounting, and medical fees

The following will not be covered:

• fines and penalties imposed by a court
• child support and maintenance
• government student loans
• debts incurred subsequent to your bankruptcy
• unliquidated debts, for which the amount is not specified.

Following your bankruptcy discharge, you are released from your debts. But for at least five years, the bankruptcy will remain on your credit report. It is permanently listed on the National Personal Insolvency Index, a public database of people who have filed for a major step like bankruptcy or entered into a formal debt agreement.

Almost all legal actions will cease once you are formally declared bankrupt, and unsecured creditors will stop contacting you. The majority of unsecured debts, for example, credit card debt, overdraft bank accounts, unpaid rent, and personal loans, will be paid off. However, some debts, such as child support, HELP/HECS, and toll fines, must still be paid even if you file for bankruptcy. You should speak with the appropriate creditors directly to discuss your payment options, as you will be responsible for these debts.

How do you determine if you are eligible for bankruptcy?

The following are typical indicators that filing for bankruptcy might be the best course of action for you:

• Requesting a loan from friends or family Not being able to pay creditors (bank, bills, invoices) by the due date
• Notices from the court
• Getting demand letters or notices about late payments
• Being contacted by debt collectors
• Applying for additional financing or credit

What Takes Place After Filing for Bankruptcy?

A trustee will be designated to oversee your financial circumstances following AFSA's approval of your application. The procedure will include:

• Looking into your financial problems and trying to get back any assets you may have sold or transferred before filing for bankruptcy.
• Claiming a portion of your earnings to pay back your creditors.
• Selling assets, such as cars or real estate.
• Contacting the creditors and assessing their assertions.

Important aspects to consider before entering bankruptcy

Before declaring bankruptcy, it is necessary to have essential support from your side. Here are a few things to check on before taking any big step-

1. Take Help of a Financial Counsellor

You don't need to struggle to manage debt and make the right decision all by yourself. Every Australian state and territory have access to financial counsellors who provide free, impartial, and private services. To help you regain control over your finances, these experts can evaluate your financial status, help with bills, support you in comprehending your options, and assist you in making well-informed decisions.

Financial counsellors offer helpful guidance on creating a budget, settling disputes with creditors, and applying for financial aid. As they can assist you in looking into alternatives to bankruptcy and attempting to find an affordable option that fits your situation, it's best if you contact them before jumping towards bankruptcy.

2. Know All Your Options

It's necessary to realise that you have other options when dealing with unmanageable debt. Even the fact is under the Bankruptcy Act, filing for bankruptcy is just one official way to deal with your debt. Here are a few other options-

• Temporary debt protection (TDP)

This option gives you a 21-day window during which unsecured creditors cannot pursue you while you look for assistance and make decisions.

• Agreements on debt

These are legally binding contracts that require you to pay your creditors a reasonable amount.

• Agreements for personal insolvency

These are contracts that you and your creditors have made to pay a certain amount in instalments or all at once.

• Bankruptcy

Lasts for a minimum of three years and one day. You are released from the majority of your debts at the conclusion of this time.

3. Understand the Consequences

No option comes without any negative impacts. A big step like bankruptcy in Australia has its own consequences to offer. Filing for bankruptcy could have a major effect on you. It might have an impact on your ability to obtain credit, travel abroad, or find certain jobs. So, before getting involved in it, it's your responsibility to make sure you know all the short-term and long-term impacts. To learn about it, have a look at the next section of this blog.

Bankruptcy Impacts in Australia

To decide whether filing for bankruptcy is the best course of action for you, it is crucial to comprehend these repercussions before doing so. In Australia, filing for bankruptcy may affect your:

• Capacity to travel abroad and obtain future credit
• Income, work, and business
• The majority of your assets would be sold to pay off your debts.

Additionally, it could limit your future goals because bankruptcy keeps you from-

• Maintaining or beginning a trade or profession
• Having a few public roles
• Having the role of a director in an organisation

Last Words

Filing for bankruptcy is a significant financial decision that has both immediate and long-term effects. It impacts your future financial opportunities even though it can give you a fresh start by paying off the majority of your debts and putting an end to creditor harassment. So, in conclusion, if you are having financial difficulties, consider your options carefully, be aware of your rights, and make a smart decision.

I am Zane Todd, a freelance writer, and an independent blogger who writes about modern technology, globalisation, and home improvement. I aspire to make a difference in society and the world we live in.