Each year, we typically receive a higher level of enquiries in relation to both corporate and personal insolvency in March. We are always happy to advise clients on legal aspects of insolvency or refer them to other professional specialists that can assist in this field, but here’s the top 8 questions we receive about personal insolvency to help anyone out there that may be considering this option – whether voluntarily or not.
1. What are the benefits of bankruptcy?
Bankruptcy may offer some of the following benefits:
(a) providing a fresh financial start;
(b) bringing to an end any wage garnishees that may be in place;
(c) preventing the Sheriff from taking possession of your personal possessions; and
(d) bringing to an end any legal obligation to pay certain debts.
2. What are the consequences of bankruptcy?
During the period of bankruptcy, an undischarged bankrupt is required to comply with the following:
(a) cannot act as a company officer;
(b) must surrender their passport to the trustee;
(c) any travel overseas must be approved by the trustee;
(d) cannot trade under an assumed name or registered business name without disclosing they are a bankrupt;
(e) cannot borrow more than the prescribed amount (currently $5,301) without informing the lender that you are a bankrupt;
(f) must surrender all books and records to the trustee as requested, including any related entities and trusts; and
(g) must make all divisible assets available to the trustee.
3. Will bankruptcy affect my credit rating?
Any type of personal insolvency will appear on your credit rating for a period of 7 years. In the majority of cases, it will take longer to repay the debts owing. Accordingly, the fresh start that bankruptcy offers can place you in a better position in the long term.
4. Will I lose all my assets?
A bankrupt is entitled to maintain some personal effects such as household furniture and clothing as well as some financial assets such as superannuation and life insurance policies (as long as the superannuation fund is regulated).
You can also retain certain assets up to a prescribed value. These include tools of trade (currently $3,600) and motor vehicles (currently $7,350). The value of these assets above those thresholds will be realisable by the trustee
5. Can I retain my ABN and run a business?
A bankrupt can continue to run a business but restrictions do apply.
6. Can I borrow money?
There are restrictions on the amount of credit that can be obtained. When borrowing over the prescribed amount of $5,301, you are required to disclose to the lender that you are a bankrupt.
7. Can I be made bankrupt if my assets exceed my liabilities?
The common definition of insolvency states that a person is insolvent if:
“they are unable to pay their debts as and when they fall due”
If an individual does not defend a bankruptcy notice regardless of whether they can or cannot pay the debt, they are considered to be insolvent and can subsequently be made bankrupt.
8. When and how does a bankruptcy finish?
Bankruptcy lasts for 3 years from the date that the Statement of Affairs is lodged, unless an Objection to Discharge is lodged by the trustee for non-compliance. If an objection is lodged the bankruptcy may be extended to up to 8 years.
A bankrupt may end their bankruptcy prior to the 3 year mark in any of the following circumstances:
(a) all creditors and costs of the estate are paid in full, resulting in an annulment;
(b) a proposal under section 73 of the Bankruptcy Act 1966 (Cth) is accepted by creditors for the compromise of their debts; or
(c) the court terminates a sequestration order, if deciding it was obtained unjustly.
The above is not intended as legal advice. You should obtain legal advice in relation to your own specific circumstances.