In general bankruptcy assets are divided into the categories of “non-divisible assets” and “divisible assets”.

Non-divisible assets
Non-divisible assets can be defined as assets that are exempt from the trustee to recover for the benefits of your creditors. Most commonly these assets include:

· Ordinary household items;
· Personal items;
· Tools of trade up to a specified limit;
· Motor vehicle (Car or motorcycle) used mainly for transport purposes with an equity amount up to a specified limit;
· Superannuation;
· Life insurance policies for yourself or your spouse;
· Compensation of personal injury; and
· An assets held by you for another person.

The specified limit for tools of trade and motor vehicles are set by the set by the Insolvency Trustee Services of Australia and are regularly updated. For information on the current amounts of the specified limit please refer to ITSA Indexed Amounts

Divisible assets can be defined as assets that are not exempt from the trustee to recover for the benefit of your creditors. Most commonly these assets include:

· Real property;
· Motor vehicles above a specified limit;
· Shares and investments;
· Proceed from deceased estates;
· Winnings from competition or lottery; and
· Tax refund from income earned before you become a bankrupt.

The powers of your trustee to recover divisible assets are not limited within Australian boarders. If you hold any divisible assets in a foreign country your trustee will have the power to recover those assets for the benefit of your creditors.

Divisible assets also include assets you hold jointly with another party/parties, secured assets and even may include assets which you have previously sold.

Jointly held asset
If you hold an asset jointly with another party, your trustee would have the right to sell off your share of the asset for the benefit of your creditors. Typically your trustee would have a preference to sell the assets to the other parties that jointly own the asset with you however the offer made to the trustee would need to be of equivalent value compare to what the trustee could obtain from selling the asset on the open market.

Secured asset
If you hold a secured asset, this means that a secured creditor has a security over your asset. These assets typically include:

· Real property under a mortgage; and
· Assets under hire purchase agreement or chattel mortgage.
The event of a bankruptcy does not automatically give the secured creditors a right for a secured creditor to take possession of your asset. However if you default on your repayments the secured creditor has the right to repossess your asset.

In the case that a secured asset you own contains equity, the trustee may seek permission from the secured creditors to sell off the asset. Should your trustee take this option, the equity amount realised from the sale of the secured asset will go towards the bankruptcy asset for the benefit of your creditors.

In the case that a secured asset you own does not contain equity, the trustee will generally disclaim their interest in the assets and will not interfere with your dealings with the secured creditor.

Asset sold prior to your bankruptcy date
In the case that you have sold off a divisible bankruptcy asset prior to the date of your bankruptcy, the trustee has the duty to investigate the asset which you have transferred going back up to 5 years. If the trustee’s investigation discloses that an asset was transferred below market value the trustee has the right to recover the asset or the difference between the market value at the time and the amount you received.

If the trustee investigations discover that you have transferred an asset for the purpose of defeating your creditors your trustee will have the right to recover those assets for the benefit of your creditors. This is typically common among Bankrupts depositing funds into their superannuation fund prior to the date of bankruptcy.

Income Contribution
On top of the assets you own, if you are earning an income you may be liable for compulsory income contributions. The income contributions made by you also form part of your bankruptcy assets.

All bankrupts are required to be assessed by their trustee on the anniversary of their bankruptcy for incomes earned that year. If you are deemed to earn an income above the prescribed threshold set by the Insolvency Trustee Service Australia then half of the income above the prescribed threshold are required to be paid into your bankrupt estate.

The threshold that relates to you is determined on the number of dependents that you have. The more dependents that relies on your income, the higher the prescribed threshold rate that applies to you.

For more information on the prescribed threshold for income contributions please visit ITSA Indexed Amounts . These rates are updated regularly.

Conclusion
The above should provide you with a basic understanding of what are bankruptcy assets and the rights of the trustee to realise the bankruptcy assets.

For more information on bankruptcy assets or information about bankruptcy generally, you can contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

In Australia, some debtors may have concerns over their taxation obligations and the Australian Taxation Office’s (“ATO”) rights against them, when considering Bankruptcy as an option. Likewise, creditors may have concerns as to whether the ATO has any priority over their claims, or that the Bankrupt may be able to use the Australian taxation laws to their advantage to the detriment of creditors.

ATO’s Powers to Bankrupt a Debtor – Like any other creditor, if the ATO is owed more than $5,000 it may take steps to recover same against a debtor by way of creditor’s petition. However, in order to enforce a debt against an individual, the ATO has an additional power that directors of struggling companies should be aware of.

Pursuant to the provisions of the Income Tax Assessment Act 1936, the Commissioner of Taxation is empowered to enforce a company’s outstanding PAYG liability by way of serving a Director Penalty Notice (“DPN”) on a director. A DPN is mailed directly to a director’s address as per the ASIC and/or ATO databases. If the director does not pay the debt or place the company into external administration within 21 days, he or she becomes personally liable for this debt, and can be made Bankrupt by creditor petition if they are unable to pay same.

ATO’s Priority in Relation to Other Creditors – In general, becoming a Bankrupt will relieve the debtor from further enforcement action from those he or she owes monies to, and such parties must then line up as unsecured creditors. At the end of the Bankruptcy, these debts are discharged and the (now former) Bankrupt receives a “fresh start”. 

However, there are some debts which are clearly defined in law to be exceptions to this rule (ie: they are not discharged at the end of a Bankruptcy). These include, but are not limited to, Centrelink overpayments, child support, HECS/HELP debts and unliquidated claims. Pursuant to the Bankruptcy Act 1966, the ATO is treated as a normal unsecured creditor in this regard in relation to debts such as income tax and GST. However, as set out below, there are a number of potential ongoing obligations for a Bankrupt in relation to the ATO.

Goods & Services Tax – Upon being appointed, a Bankruptcy Trustee is obligated to notify the ATO, who will then suspend the Bankrupt’s GST registration. A Bankrupt can continue to use their ABN if carrying on a business during their Bankruptcy, by applying to the ATO to have it reactivated.

If the Bankrupt carried or carries on a business, and is required or entitled to be registered for GST purposes, the Trustee is also able to register for GST, but may only claim for taxable supplies made either in realising business assets, or administering the estate in relation to the Bankrupt’s business (for example, the Trustee’s costs of adjudicating on business debts of the Bankrupt for dividend purposes).

Ongoing Tax Liabilities and Treatment of Refunds – Contrary to the belief of some, a Bankrupt is still required to complete income tax returns and pay any outstanding tax for the period subsequent to Bankruptcy, including BAS/GST obligations.

The ATO can withhold post-appointment tax refunds against its pre-appointment debt. However, pursuant to Section 153 of the Bankruptcy Act 1966, “Where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts…provable in the bankruptcy”. Accordingly, pursuant to this Act, the debtor is entitled to retain all refunds applicable to periods after the date of discharge.

Tax refunds received by the Bankrupt for periods occurring prior to Bankruptcy form part of the Estate’s assets, and therefore vest in the Trustee.

Bankrupts are entitled to receive tax refunds for periods subsequent to the commencement of the Bankruptcy (provided there is no pre-appointment debt for the ATO to set off against), but they will form part of the Bankrupt’s assessable income in the Trustee’s determination as to whether income contributions are required to be made. Additionally, if the Bankrupt is not meeting their required income contributions, the Trustee may apply for a Garnishee order against the ATO to have refunds remitted directly to them.

Conclusion – There are a number of ongoing obligations for a debtor relating to bankruptcy and tax to be considered, which we aimed in this article to explained.  For further assistance about bankruptcy and tax or information about bankruptcy generally, you can contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

A Bankruptcy Listing is required for a variety of reasons, from determining the current Bankrupts in Australia, to allowing creditors to determine if their non-company debtors are reliable and able to pay their debts as they fall due and credit-card companies utilise the listing to determine the history and the viability of a debtor.

How to determine if a person is Bankrupt

To determine if a person is Bankrupt, you need to utilise the services of an authorised Index Search Agent, i.e. Australian Business Research, NDC and Citec Confirm.  These search agents have been granted access by Insolvency and Trustee Service Australia, to review the Bankruptcy Listing, in addition the search agents also provide services with regards to company searches and Australian Securities and Investments Commission documents.

The only information required prior to performing a search is a full legal name of the Bankrupt. As some Bankrupts have similar names, additional information to simplify your search may be required. Information about the age, occupation and state of residence, will assist in confirming you are dealing with the right Bankrupt.

Service providers can vary in cost therefore investigation is required into the services provided that is appropriate for your needs.

How does a person appear on the Bankruptcy Listing

Debtor’s petition
By declaring Bankruptcy voluntarily, you are required to complete a Debtor’s Petition and Statement of Affairs, these documents are then lodged with Insolvency and Trustee Service Australia. You are only declared Bankrupt when the Official Receiver has accepted your application. At this stage your name will be recorded on the Bankruptcy Listing.

Creditor’s petition
If a creditor is owed the statutory amount they may issue a petition to the Federal Ccourt or Federal Magistrates Court to declare the debtor Bankrupt by way of ‘Sequestration Order’. Upon issue of this order the debtor’s name will be recorded on the Bankruptcy Listing.

How long are you listed as a Bankrupt

A Bankrupt is listed for three year from the date the Bankrupt files a Statement of Affairs, however the period of Bankruptcy can be extended from five to eight years if a Bankrupt fails to comply with their legal obligations.

After the date of cessation of the Bankruptcy, the Bankrupt is listed as a “Discharged Bankrupt”. This record will stay on the Bankruptcy Listing perpetually.

The Bankruptcy can also be annulled under section 153A of the Bankruptcy Act 1966.

The Bankrupt can make a proposal to the creditors under Section 73 of the Bankruptcy Act 1966. The Bankrupt would generally offer funds to creditors outside of the assets that vest with the trustee, i.e. funds from a related party or a compensation claim. A meeting would be called to consider the proposal.

If the creditors accept the proposal by special resolution, the Bankruptcy ceases and is recorded as “Annulled” on the Bankruptcy Listing. This record will stay on the Bankruptcy Listing perpetually.
We hope this article explains in simple terms what is meant by a bankruptcy listing. For further assistance about a bankruptcy listing or information about bankruptcy generally, you can contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

What is a PIA?
A PIA is a legally binding agreement between you and your creditors, which allows you to settle your debts without becoming bankrupt. The primary difference between a PIA and other formal arrangements is that there are no limits on debts, incomes, and assets for those considering undergoing a PIA.  You must however be insolvent, reside in Australia, or have an Australian connection (i.e. must be involved in a business operating in Australia) to be eligible.

A PIA can be proposed with the following payment terms:

• A lump sum payment divided among creditors either from your own money or monies from parties not usually available to the creditors;
• A transfer of assets to your creditors;
• A sale of assets and payment of proceeds to creditors; or
• A renegotiated payment arrangement with creditors.

A PIA allows you to appoint a Controlling Trustee to take care of your assets and financial affairs and to pass the proposal onto your creditors. Only an Official Trustee (ITSA), or a Registered Trustee, and/or a qualified Solicitor can be appointed as a Controlling Trustee.

The Controlling Trustee is expected to study the proposal and investigate your financial records and affairs. They will then draft a report, which contains the Controlling Trustee’s assessment of the proposal, noting whether or not it is for the benefit of your creditors to accept it. Creditors have the right to ask questions from the Controlling Trustee regarding your past and present financial affairs. Once a Controlling Trustee has been appointed, your unsecured creditors are prevented from pursuing any further action to recover their debts.

In not less than 25 working days within the appointment of the Controlling Trustee (or 30 working days if the appointment is made in December), the Controlling Trustee calls the creditors to a meeting where they will vote upon the proposal. A creditor who cannot attend the meeting may send a representative or participate by telecommunication facilities. It is expected that you are present at the meeting should the creditors have questions that they need answered. A majority of creditors and 75% of the dollar value of thse creditors debts, need to vote “yes” for the proposal to be accepted.

If the proposal is accepted, all unsecured creditors are bound to the provisions of the PIA and are prevented from taking further action against you to recover their debts. A Trustee, who may be different from the Controlling Trustee, is appointed to administer the PIA. However, if the proposal is refused, the creditors will vote whether or not to petition the Court to declare you bankrupt.

You should keep in mind the consequences of a PIA:

1. Proposing and entering into a PIA is considered an act of bankruptcy. If the proposal is not accepted or if the agreement fails, a creditor may use this as evidence in Court when petitioning to make you bankrupt.
2. The proposal and agreement are recorded in the National Personal Insolvency Index forever and in the records of private credit reporting companies for up to seven years.
3. You are prohibited from managing a corporation until all terms of the PIA are satisfied.

Creditors may, at any time during the period provided in the agreement, vary the terms of the PIA with your written consent. You may also propose variations of the agreement subject to changes in your life circumstances. If none of the creditors object to your proposal, the variations are set. However, if a creditor objects, the Trustee calls a meeting of creditors to consider the variation.

In the event that the creditors believe that the terms of the PIA are not being met, they may draft a resolution to terminate the agreement, provided that the Trustee is convinced that you are not fulfilling your obligations as debtor. The Court may also terminate the PIA under special circumstances.

The Controlling Trustee will charge a fee for studying your proposal, investigating your financial affairs, preparing a report to creditors, and conducting the meeting of creditors. The Trustee administering the PIA, who may or may not also be the Controlling Trustee, will also charge a fee. Any funds realised are subject to a Government realisation charge and interests received during the administration are paid directly to the Australian government.

For information on other formal options i.e. Declaration of intent to present a Debtor’s petition; Formal Debt Agreements; and Voluntary Bankruptcy.

For further assistance on entering into a PIA or for personal insolvency information generally, you can contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

Formal Debt Agreement
A Formal Debt Agreement is a legally binding contract between you and your creditors, where your creditors agree to receive an amount of money to settle your debts. 

Payment is normally based upon your capacity to pay, after having considered income and household expenses, among other things. Some different types of agreements you might consider offering include:

• Weekly or monthly instalment payments from your income,
• A lump sum payment, which may be less than the real value of the debts and will be divided among creditors, and/or
• A freeze on all your debts to allow you time to recover.

To be eligible to propose a debt agreement you must…
      1. Be insolvent,
      2. Not have been bankrupt in the last 10 years, and
      3. Have unsecured debts, assets and income that are less than
          a set limit.  (This amount will vary according to the ITSA
          criteria) 

You may propose a debt agreement if you can meet all of the abovementioned requirements.

There are, however, some important consequences of proposing a debt agreement that you need to take into consideration. First of all, doing so is, in itself, an act of bankruptcy. Should your creditors refuse to accept your agreement, they may petition the Court to have you declared bankrupt. Your name will appear as a public record on the National Personal Insolvency Index (NPII) for the proposal and for the debt agreement, in the event that your creditors agree to accept it. Consequently, the proposal will also appear on your credit reporting organisation’s records for up to seven years and may affect your ability to obtain future financing. 

The creditors will then vote on whether they should accept or refuse your proposal. During the voting period, creditors are suspended from taking any action to go after your assets, including garnisheeing your wages. For the proposal to be accepted, it must be accepted by both a majority of creditors present and with at least 75% in $ value.

If your proposal is accepted, all unsecured creditors are bound to the provisions of the agreement and they cannot take any further action. You are obliged to pay them in the manner that you indicated in your proposal. Once you have completed these payments, you are released from your unsecured debts. However, a debt agreement does not prevent a secured creditor from relying on their security and seizing your assets, such as a house, to pay the debt. If you have joint debts, a debt agreement does not release the other person from the debt.

A debt agreement administrator is appointed to complete the following tasks:

      1.   Collect payments from you.
      2.   Pay dividends to creditors.
      3.   Inform you and your creditors on matters pertaining to the
            agreement.
      4.   Inform the Insolvency and Trustee Services Australia 
            (ITSA) when the agreement has been completed.

Any time during the length of the payment period provided in the agreement that your life circumstances have changed, you may propose a variation of the agreement. Creditors again convene to decide whether to accept this variation proposal or not. If they do not accept the proposal, the original agreement remains in force.

Any of the creditors may file a proposal or petition the Court to terminate the agreement if the terms are not being satisfied. The agreement is automatically terminated under any of the following circumstances:

      1.  You have not made a payment six months after it is due; OR
      2.  You have not completed your payments six months after
            the expected completion date of the agreement.

If the debt the agreement is terminated, the creditors are permitted to take recovery action against your debts. They may lodge a petition before the Court to make you bankrupt, or you may declare voluntary bankruptcy. The termination of the debt agreement is also recorded in the NPII. 

The debt agreement administrator may charge a fee, usually a percentage of your payments to the creditors, for his/her services. Any fund realised by the debt agreement administrator, including interests on it, is also subject to a realisations charge, which is paid directly to the Australian government.

For more information on other options i.e. Declaration of intent to present a Debtor’s petition; Personal Insolvency agreement; and Voluntary Bankruptcy.

For further assistance on entering into a Formal Debt Agreement or for personal insolvency information generally, you can contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

What are some possible options to deal with unmanageable debt?  

Option 1: Informal Arrangements

One option is to consider contacting your creditors to negotiate a payment arrangement. Some may agree to extend your payment period, decrease the amount of payments, or accept a smaller amount in settlement for your debts.

Before taking such option, however, it would be in your interest to consider enlisting the help of a registered Trustee or accountant. They may give you recommendations for your next action and may also offer to speak to your creditors on your behalf.

Option 2: Formal Arrangements

Under the Bankruptcy Act of 1966, a person has a number of formal options to assist them to deal with their unmanageable debt.  The Act allows the following formal options as follows:

a)   Declaration of intent to present a debtor’s petition,
b)   Proposal of a formal debt agreement,
c)   Proposal of a personal insolvency agreement (PIA), and
d)   Voluntary bankruptcy.

If you decide to undergo any of the abovementioned arrangements, your creditors are subject to the provisions of the law, which may or may not prohibit them from taking further action to recover your debts.

a)   Declaration of intention to present a debtor’s petition

A declaration of intention to present a debtor’s petition, gives you a period of seven (7) days to speak with your creditors or to consider what options are available to take control of your debts. During this period, creditors are stopped from garnisheeing your wages or recovering your assets to pay for unsecured debts. However, secured creditors still have the right to repossess an asset during this period. You may lodge a declaration of intention to present a debtor’s petition once every 12 months. You do not necessarily become bankrupt after this period expires.

b)   Formal Debt Agreement

A formal debt agreement is a legally binding contract between you and your creditors, where creditors agree to receive a certain amount of money from you to settle your debts. This amount may be smaller than the real value of the debts. 

Payment is based upon your capacity to pay, after having considered income and household expenses, among other things. You may propose any of the following:

a) Weekly or monthly instalment payments from one’s income,
b) A lump sum payment, which may be less than the real value of the debts and will be divided among creditors, and
c) A freeze on all your debts to allow you time to recover.

For more detailed information on Formal Debt Agreements.

c) Personal Insolvency Agreement

A personal insolvency agreement (PIA) is a legally binding agreement between you and your creditors, which allows you to settle your debts without becoming bankrupt. Please note that doing a PIA cannot exclude your statutory debts. 

The primary difference between a formal debt agreement and a PIA is that there are no limits on debts, incomes, and assets for persons who are considering undergoing a PIA. You must be insolvent and in Australia, or must have an Australian connection (i.e. must be involved in a business operating in Australia) to be eligible to propose a PIA.

For more detailed review of the workings of a Personal Insolvency Agreement.

d) Voluntary Bankruptcy

Voluntarily bankruptcy is an option if you are unable to come to a suitable agreement with your creditors. You have to be living in Australia or must have an Australian connection at the time of petitioning for you to be eligible. Furthermore, if ITSA believes that you are able to pay your debts and that you are filing for bankruptcy to avoid paying certain debts, your petition to become bankrupt will be refused.

ITSA, which is the Official Trustee, is initially appointed to become your Trustee. However, you may choose to appoint a registered Trustee to administer your bankruptcy or leave it to the ITSA to arrange for one to be appointed. The creditors may change your Trustee anytime they deem necessary, however they need to pass an ordinary resolution at a meeting of creditors.

The Trustee is responsible for informing your creditors of your bankruptcy. He will be in charge of administering your estate and taking actions to pay your debts. Such actions include:

• Selling your assets, save for certain necessary belongings;
• Requiring you to make regular contributions from your income if you are earning an amount that is more than a set limit;
• Recovering assets you may receive during the bankruptcy or which you have transferred to another person for an amount less than the real value of the asset; and
• Investigating your past and present financial affairs.

Bankruptcy generally lasts for three years, but this period can be extended up to five to eight years, if decided by the Trustee. It is shown as a permanent record on the National Personal Insolvency Index (NPII)  and on the records of credit reporting companies for up to seven years.

For further assistance on which option would best suit your situation or for general personal insolvency information, contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

How to terminate my bankruptcy?

Bankruptcy in Australia lasts three years starting from the date you filed a Statement of Affairs. The Trustee may extend this period to five or eight years if you fail to fulfil your obligations during bankruptcy.

Can my bankruptcy be annulled during the three years of bankruptcy?

Yes, Section 153A of the Bankruptcy Act of 1966 allows you to annul your bankruptcy at any time during the three year period as long as your debts are paid in full.

Under Section 73 of the Bankruptcy Act of 1966, a bankrupt may make an offer of a composition or enter into a scheme of arrangement with creditors to settle the debts. You must offer monies that are not available to creditors, such as money offered by a relative or income that is not under any contribution assessment liability.

The Trustee convenes the creditors or the creditors’ representatives for a special meeting to vote on your offer of composition. You will be asked to attend the meeting and speak to your creditors. If at least 75% in value and 50% in number of all creditors represented in the meeting accept your offer, a special resolution is passed to annul your bankruptcy. If the offer is rejected, the monies are refunded.

Creditors either attend a meeting convened by the Trustee, appoint another person to attend on their behalf as their proxy vote on whether to accept or reject the offer of composition or send a Assent/Dissent form indicating whether they vote for or against the proposal. The bankrupt receives an annulment upon the special resolution being passed, accepting the proposal.

For more information on what happens on becoming bankrupt? or what happens once bankrupt?.

We hope this article has answered some of your questions on how you can terminate or annul your Bankruptcy in Australia or you can contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

What happens to my assets?

Pursuant to Sections 58 and 132 of the Bankruptcy Act, upon declaring bankruptcy control of your assets automatically vests in the Trustee. Other assets acquired during the period of bankruptcy, such as lottery winnings or inheritance from a deceased estate, also vests in the Trustee.

The law, however, provides that you may retain certain property, including:

• Personal effects, such as necessary clothes and household furniture;
• Property used in earning income, provided the value of the property is less than an indexed amount;
• Property used as a primary means of transportation, provided the value of the property is less than an indexed amount (i.e. car or motorbike);
• Property for educational purposes i.e. TV, DVD etc
• Property held in trust for another person, such as a child’s bank account;
• Life assurance and endowment assurance policies and proceeds thereof;
• Superannuation policies and proceeds thereof;
• Compensation from damages due to personal injury or wrongs to you, your wife, or your family;
• Property purchased through the proceeds of endowment and annuity policies, compensation from damages, or Rural Adjustment Schemes;
• Items of sentimental value, such as sports, military, cultural, or academic awards.

Moreover, if you are earning an income that is more than the value of a threshold amount, you are required to make regular income contributions of 50 cents after every tax dollar above the indexed amount.

What happens to my house?

The Trustee takes any equity you might have in your family home. This means that your house may be sold and the proceeds given to your creditors. If you are a joint-owner, the Trustee may sell your interest to a non-bankrupt joint-owner.

If you are falling behind in your mortgage repayments, a secured creditor can sell your house to make up for the shortfall in your payments. If the sale of your house exceeds the total amount you owe the creditor, the surplus is paid to the Trustee.

What happens to my car?

A vehicle that is used as a primary means of transportation and has a value not exceeding a prescribed limit can be retained during bankruptcy. Examples of this are a car or a motorbike. However, if the value of the vehicle is more than the prescribed amount, the Trustee takes your vehicle and sells it. The Trustee then gives back the value of the prescribed amount to you and retains the balance for your creditors. If two bankrupts own the vehicle, the relevant value is twice the prescribed amount.

What happens to my job?

Bankruptcy does not prevent you from working. Normally, your employer is not provided your personal bankruptcy information, unless you owe him/her money or you fail to pay your regular contributions. You are still required to file tax returns for any income received during bankruptcy.

There are certain professional licensing authorities that impose certain restrictions on members under bankruptcy. You should confirm with your licensing authority whether or not your bankruptcy affects your ability to practice your profession.

Can I travel overseas?

You may leave Australia to travel overseas, provided you obtain written consent from the Trustee. The Trustee may choose to impose certain conditions when giving you permission to travel.

What are my obligations during bankruptcy?

As a bankrupt, you are required to:

1. Inform the Trustee of all changes in name and/or address.
2. Obtain written permission from the Trustee if you wish to travel. You may also have to surrender your passport to your Trustee.
3. Inform the Trustee of all changes in income and assets.
4. Cooperate with the Trustee. You are required to provide all information asked of you, answer questions under examination, and attend meetings.

Failure to fulfil these obligations may lead to an additional two to five years onto the period of your bankruptcy.

For more information on what happens on becoming bankrupt? or how to get your bankruptcy annuled or terminated?.

We hope this article has answered some of your general questions on bankruptcy in Australia. For further information contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

How do I become bankrupt?

A person becomes bankrupt by voluntarily filing for bankruptcy or by having a creditor petition the court to make him bankrupt.

1. Voluntary Bankruptcy.
When you cannot pay your debts or reach suitable repayment agreements with your creditors, it may be time to consider bankruptcy. To file for voluntary bankruptcy, you must complete a Debtor’s Petition and Statement of Affairs. These are submitted to the Insolvency and Trustee Service Australia (ITSA), the official government body that handles all requests for volunatary bankruptcy.

You must disclose all information on your personal and business debts. This includes the name, address, and amount you owe to each of your creditors. You are also obliged to provide the full details of your income and personal assets such as houses, cars, bank accounts, shares, and any money you are owed. Failure to disclose information or if you unlawfully dispose of any asset can lead to serious penalties, including imprisonment.

You must also be living in Australia or have an Australian connection at the time of your petitioning. Instances of an Australian connection are: ordinarily living in Australia or being part of an Australian-based business. You are officially declared bankrupt when the Official Receiver has accepted your application.

2. Creditor’s Petition.
One of your creditors may petition the Federal Magistrates Court or the Federal Court to declare you bankrupt. For this to happen, you must owe your creditor at least $5,000 and your creditor must provide evidence that you cannot pay your debt.

Who handles my bankruptcy?

Bankruptcy in Australia is managed the ITSA or by a registered trustee appointed by your creditors. The following are the duties of a trustee:

• Secure and sell divisible assets;
• Ensure that regular income contributions are paid to your bankruptcy; and
• Examine your past and present financial transactions, with the possibility of recovering assets that have been transferred to other persons for an amount less than the real value of the asset or hidden from your bankruptcy.

What happens to my debts once I become bankrupt?

Once you are declared bankrupt you are immediately released from many of your provable debts.

1. Unsecured Debts and Creditors. Unsecured debts are debts not protected by any assets, for example credit cards and personal loans are examples of unsecured debts. Generally, unsecured creditors have no right to recover any item you purchased with the money you owe them. They cannot make any claims in your bankruptcy and you are discharged from your debts.
2. Secured Debts and Creditors. Secured debts are those protected by an asset. If you fall behind in payments, a secured creditor may claim the asset and sell it to pay for the debt. Examples of secured debts are mortgages and bills of sale. Creditors for hire purchase and lease agreements may also lodge a claim for your assets and sell them. However, if you wish to keep your assets, you are always entitled to negotiate with your secured creditors to reach amenable agreement with all. The Trustee may still sell your asset if the amount required by the agreement is less than the value of the asset.
3. Debts Not Covered by your bankruptcy. You are not discharged from the following debts, during your bankruptcy:
   • Fines for violating the law
   • Debts arising from fraud
   • Maintenance payments (family or child)
   • Child support
   • Debts owed to the Department of Social Security
   • Accumulated HECS (Higher Education Contribution Scheme) debts raised before bankruptcy
   • Student Supplement Loans

In addition, suppliers of unpaid housing or utility services, such as electricity, telephone, or gas may require payment in full or a bond payment to maintain the provision of services.

How long will I remain bankrupt?

Bankruptcy in Australia lasts three years starting from the date you filed a Statement of Affairs. The trustee may extend this period to five or eight years if you fail to fulfil your obligations during bankruptcy.

For more information on what happens once bankrupt? or how to get your bankruptcy annuled or terminated?.

We hope the above article has answered some of your questions on becoming bankrupt and bankruptcy in Australia. For further information contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.

Voluntary Bankruptcy
There is no minimum amount of debt you have to owe before you can file for voluntary bankruptcy. Declaring yourself bankrupt follows a certain procedure proscribed by the Bankruptcy Act of 1966 (‘the Act’). Once you have considered all your options and decided that declaring bankruptcy is your best course of action, the following are the specific steps to take:

Step 1
You first need to complete a Debtor’s Petition and Statement of Affairs. The Statement of Affairs must disclose all personal information and full details of your financial affairs, including the following:

• Your name and address;
• All personal and business debts for which you are liable;
• The amount you owe to each of your creditors; and
• Full details of your income and assets, such as a house, a car, a bank account, shares and stocks, or any money owed to you.

You must disclose all property in the Statement of Affairs.  Failure to do so by hiding or unlawfully disposing of a property or any item of value is considered a breach of the law. Severe penalties, including imprisonment and extension of your bankruptcy can be imposed.

All forms are available from the Insolvency and Trustee Services Australia (ITSA), the government body that officially handles all cases of bankruptcy.

Step 2
The Debtor’s Petition, and the completed Statement of Affairs must be lodged with ITSA. You may post or hand-deliver these documents.  If you wish to have a private Trustee administer the bankruptcy then the documents need to be provided to the Trustee.

Step 3
You need to wait for ITSA to process your forms. It normally takes around 24 to 48 hours for your forms to be accepted by the Official Receiver in Bankruptcy and for you to be declared bankrupt. A letter confirming your bankruptcy number will be sent to you.  It is important that you keep this number nearby as you will need it in all correspondence with ITSA all throughout the period of your bankruptcy. The letter will also contain all your duties and obligations as a bankrupt.

What Happens Upon Declaring Bankruptcy?
ITSA takes over all cases of bankruptcy filed voluntarily and they may delegate them to private Trustees to administer. However, you may appoint a Registered Trustee to administer your estate, provided you have obtained the Trustee’s written consent.

What are my obligations under voluntary bankruptcy?
As an undischarged bankrupt you are legally required to meet certain obligations.  Your obligations restrict you from travelling, unless you have your Trustee’s permission, obtaining credit over a prescribed amount, managing a corporation or running a business.  You must also advise your Trustee, if you change your name or principal place of residence and cooperate with all the Trustees requests.

What happens to my assets?
Pursuant to Sections 58 and 132 of the Bankruptcy Act, upon declaring bankruptcy control of your assets automatically vests in the Trustee. Any assets acquired during the period of bankruptcy, such as lottery winnings or inheritance from a deceased estate, also vests in the Trustee. For more detailed information on what happens to specific assets i.e. car and family home.

Moreover, if you are earning an income that is more than the value of a threshold amount, you are required to make regular income contributions of 50 cents of every tax dollar above the indexed amount.

Can my bankruptcy be annulled?
Yes. Section 153A of the Act provides that your bankruptcy is annulled at any time during the three-year period if all your debts are paid in full. For a further explanation on annulling or terminating of your bankruptcy.

You may also make a Section 73 proposal, which is an offer to settle all your debts by using monies not available to your creditors in your bankruptcy, such as money from relatives or friends. The Trustee convenes a meeting of the creditors to vote on your proposal. If a majority in number and 75% in value of all creditors who participate in voting on your proposal accept the offer, a special resolution is passed to annul your bankruptcy.

We hope this article has satisfactorily answered your questions on declaring yourself bankrupt. For further information on voluntary bankruptcy, please contact us directly via e-mail or through our Insolvency InfoLine 1800 802 702 for a FREE consultation.

The information in this article was correct at the date of posting and should be relied upon as a guide only.  We urge you to always seek professional advice before taking any further action.