Going bankrupt sounds like a terrifying proposition, but in some cases, it is actually your best option to free yourself from mountains of debt. So, how do you know if bankruptcy is the right course of action for you? Read our handy guide to find out.
Bankruptcy occurs when you can no longer afford to repay your debt obligations and have exhausted all other options. This is not something that you should enter into lightly and should be used as a last resort measure only. It is important to note that bankruptcy will only cover unsecured debt, like credit cards. You will still need to make repayments on your secured debts, like your mortgage and car loan. If you are unable to meet these repayments, your property will likely be repossessed by the bank. Child support or alimony payments will also remain unaffected by bankruptcy status.
If your debts have truly become unmanageable, bankruptcy can help you to get the debt collectors off your back. Once you have declared bankruptcy, creditors and debt collectors will no longer be able to pursue legal action against you in an effort to obtain repayment of your unsecured debts. Bankruptcy will have long-term effects on your credit score and ability to obtain new credit, so you should typically seek to work out other arrangements with your creditors before resorting to bankruptcy.
A declaration of bankruptcy will remain on your credit file for five years, during which time you will find it incredibly difficult to obtain new credit. In order to repay your debts, much of your personal property can be seized, like jewellery, stocks, inheritances and household fixtures and decor that holds monetary value. Sentimental property and household furnishings and appliances may not be taken. You’ll also have to surrender your passport for the duration of your bankruptcy, meaning that you will be unable to travel outside of Australia.
In order to declare bankruptcy, you’ll need to complete a Debtor’s Petition form. You will then lodge this form with the Australian Financial Security Authority (AFSA). AFSA will then have the opportunity to either accept or reject your application. If your petition is accepted, you will receive notification of its success, as well as a detailed explanation of your rights and obligations during bankruptcy.