Throughout the course of our lives, most of us will experience financial difficulties at one point or another. While many people are lucky enough to recover from temporary distress, others may need to rely on personal insolvency measures to resolve their debts. Bankruptcy is a common solution to serious financial difficulties that helps people find relief from creditors, repay their debts and keep their lives moving forward. At its heart, bankruptcy is a straightforward process that consists of a few main stages which we will explore in this article.
Applying For Bankruptcy
The first step of the bankruptcy process is to make an application to the Australian Financial Security Authority (AFSA). Broadly speaking, there are two key forms of bankruptcy applications:
- Debtor’s Petition. A debtor’s petition (or voluntary bankruptcy) is the process where you make your own application for bankruptcy. There are no minimum requirements for debt or income to be eligible for voluntary bankruptcy. If you’ve become unable to pay your debts, you can also speak to a registered trustee and have them assist you with the application process.
- Creditor’s Petition. If you owe someone more than $10,000 and commit an act of bankruptcy (such as failing to comply with a bankruptcy notice), a creditor can apply to the court to make you bankrupt. This is also known as a sequestration order.
Appointment of the Trustee
All bankruptcy proceedings are overseen by an independent trustee. It’s the job of the trustee to deal with both the bankrupt and their creditors to reach an acceptable outcome. When you become bankrupt, a trustee will be appointed by AFSA. The appointed person or body may either be the Official Trustee (AFSA) or a registered trustee appointed by AFSA. You may also nominate a registered trustee of your choice.
At this point your creditors will cease contacting you and most types of legal recovery action will cease. You will still be required to pay things such as your ongoing utility bills and any new debts you incur after the bankruptcy commences.
Assessing Your Financial Situation
Once your application for bankruptcy has been accepted by AFSA, you will be required to provide the full details of your debts, income and assets to your trustee. As part of proceedings, your trustee will investigate your financial situation to determine which creditors are owed money and the order in which they will be repaid.
During their investigations into your financial situation, the trustee will also look for and recover voidable transactions. Voidable transactions are any payment or transfer of money and assets designed to defeat creditors. Depending on the transaction and when it occurred, the trustee may be able to recover the money or property and use it to repay creditors.
Once a trustee has completed investigations into your financial situation, the trustee may sell some of your assets to pay creditors. The trustee will also assess your ongoing income and expenses and you may be required to make payments to satisfy creditors. Any payments will be fairly assessed against your reasonable expenses to ensure you aren’t required to pay more than you can afford.
Money collected through repayments and the sale of assets will then be used to pay the trustee’s fees and distributed among your creditors.
Discharge From Debts and Obligations
In most cases, Australian bankruptcy lasts for three years and one day. At the end of that period, the bankrupt is released from most of their debts and obligations to creditors. Some types of debt are not extinguished by bankruptcy, including:
- Court imposed fines and penalties
- Child support payments
- Debts incurred through fraud
- HECS/HELP debt
- Secured debts (e.g. mortgages)
Bankruptcy will not release you from your obligation to make repayments against secured debts, such as mortgages and car loans. If you’re unable to repay those debts, the creditor who holds the security may repossess the property to recover their losses.
Seeking Professional Bankruptcy Advice? Contact SV Partners Today
Bankruptcy is an effective tool for helping individuals find relief from their debts and start life afresh. But, the process carries serious, ongoing implications that mean it should be considered a last resort. At SV Partners, our team provides expert advice on bankruptcy, personal insolvency and financial difficulties. Before you make any decisions, we can assess your situation and help you explore bankruptcy and your other options. To arrange a free confidential consultation, you can contact us on 1800 246 801 or get in touch with us online today.