Filing for bankruptcy is something you can do to help alleviate debts and put or stop a failing business from haemorrhaging further funds. But there are a lot of things to consider when declaring bankruptcy, as it can have very serious long-lasting effects on both your business and personal life.
Immediately after declaring bankruptcy, you must assign a trustee to work with you and your creditors to achieve a fair and reasonable outcome for all parties involved. When you apply for voluntary bankruptcy, you are able to nominate a registered trustee of your choice. If you don’t nominate a trustee, the Australian Financial Security Authority will appoint the Official Trustee. You must declare any assets you have when you apply for bankruptcy and any you receive during bankruptcy, and your trustee may sell assets including your house and property to cover debts.
You are allowed to keep household goods and personal effects such as a television, computer, and furniture of reasonable value, as well as a vehicle worth less than $7,700 and tools required for a trade.
Your name will permanently appear on National Personal Insolvency Index (NPII), you will not be allowed to travel overseas without explicit permission from your trustee. There may also be some restrictions on your employment and run a business.
Bankruptcy normally lasts for three years and one day from the day you file your statement of affairs. Credit reporting agencies will keep a record of your bankruptcy for five years from the date you became bankrupt, or two years from when your bankruptcy ends, whichever is later. There is no limit to the amount of income that you can earn while you’re bankrupt, and there is no limit to the amount you can save during your bankruptcy. However, if your after-tax income exceeds $54,736.50 after tax for a person with no dependents and $69,515.12 for a person with two or more dependants, you may have to make compulsory payments to your trustee.
What debts are covered by bankruptcy?
It is important to note that bankruptcy usually only affects unsecured debts. Unsecured debts, which are debts that are not tied to the specific property, include debts such as:
- credit and store cards
- unsecured personal loans and pay day loans
- gas, electricity, phone and internet bills
- overdrawn bank accounts and unpaid rent
- medical, legal & accounting fees.
Overseas unsecured debts are covered in your Australian bankruptcy provided you remain in Australia. If you move back to a country where you have debt, overseas debtors can pursue you.
Bankruptcy does not cover secured debts, such as mortgages or car loans. The creditor will still have the right to take possession of your property if you don’t make payments during your bankruptcy period.
You may need to continue to pay government debts, such as Child support, Centrelink and Higher Education debts, and any court fines. Seek advice on this from a financial counselor.