Life after Bankruptcy: Obligations and Restrictions

28 September 2017

Personal financial hardship can be a very distressing time for a debtor, their family, and other parties involved.  Bankruptcy offers a struggling debtor a release from financial debts, a chance to start over, and to rebuild financially.  The appointed Trustee in Bankruptcy will take control of any of the bankrupt’s available assets and will deal with creditors, this is often referred to as the ‘bankrupt estate’.  The Trustee’s aim is to provide a fair and reasonable outcome for all parties involved.

While you may want to bury your head in the sand and forget about your situation, your Trustee will require your assistance and you will be subject to a number of obligations and restrictions for the duration of your bankruptcy.

Obligations & Restrictions

Once bankrupt your Trustee will take over managing your affairs for the period prior to bankruptcy.  Any debts incurred after the date of bankruptcy are your responsibility.  For the duration of your bankruptcy period, you are obliged to comply with your Trustee’s requests, including:

  • Completing a Statement of Affairs which details your assets, liabilities and personal details, to be lodged with the Australian Financial Services Authority (AFSA) within 14 days of the date of bankruptcy;
  • Advising the Trustee of any change in your circumstances, including:

- Name, address, income or employment;

- Any assets or debts that were omitted from your Statement of Affairs;

- Any assets bought or won both before and during your bankruptcy (e.g. house, car, winnings);

- Details of any inheritance received or likely to be received during your bankruptcy;

  • You are unable to deal with or dispose of any assets that become assets of the bankrupt estate, including your house and property (if the Trustee determines there is equity available for the benefit of creditors).  If there is no equity in your property, your Trustee may allow you to retain your house/property but you will be responsible for maintaining mortgage payments as bankruptcy does not release you from this secured debt;
  • Supplying your Trustee with all books and records requested by your Trustee;
  • Surrendering your Passport to your Trustee – you will be unable to travel outside Australia without the written permission of your Trustee;
  • Completion of annual Income Questionnaires – your Trustee is required to assess your income each year and if your income is in excess of the statutory threshold (currently $55,446.30 net of tax (i.e. after tax) with no dependants (indexed annually)), you may be required to make income contributions to your Trustee.

While bankrupt you also have the following obligations and restrictions in dealing with third parties:

  • To disclose your bankruptcy if you apply for credit over a set amount, currently $5,613 (indexed annually).  Credit reporting agencies will keep a record of your bankruptcy for the latter of 5 years from the date of bankruptcy or 2 years from the end of bankruptcy;
  • Disclose your bankruptcy if you operate a business that trades under a name other than your name;
  • You cannot be the Director of a company, pursuant to Section 206B(3) of the Corporations Act 2001 a person is disqualified from managing corporations if the person is an undischarged bankrupt;
  • You are prohibited from managing a corporation unless you have permission of a court;
  • Certain professional and licensing organisations may suspend or cancel your membership or license and restrict or prevent you from continuing in that trade or profession which may affect your ability to earn an income; and
  • You may not be able to hold certain public positions.

Consequences

A bankrupt that fails to comply with requests from his/her Trustee, or who breaches the obligations and restrictions detailed above, risks having their bankruptcy period extended by their Trustee for up to 8 years from the date of lodgement of your Statement of Affairs. In certain circumstances, criminal penalties may also apply.

Action

Whilst bankruptcy offers the opportunity for a fresh start and a release from debts, it is important to realise that bankruptcy is final and there is no changing your mind once you become bankrupt.  It is important to consider all your options before deciding to declare yourself bankrupt – there may be other options available to you depending on your circumstances.  If you are experiencing personal financial difficulty and would like to take advantage of the guidance and assistance of an experienced, independent advisor, call Rodgers Reidy now for a confidential discussion in relation to your specific circumstances.

Further resources:-

1.       AFSA – www.afsa.gov.au - Personal Insolvency Information for Debtors

2.       AFSA – www.afsa.gov.au - Consequences of bankruptcy

3.       AFSA – www.afsa.gov.au - Indexed Amounts

 

Contact our team

Processing...
Latest News
Busting the misconception that bankruptcy means no more income
Busting the misconception that bankruptcy means no more income
There are common misconceptions as to how much you can earn during the period of your bankruptcy and restrictions associated with being bankrupt. This article will provide information to determine whe…
Bankruptcy 101
Bankruptcy 101
The Covid-19 pandemic has put unprecedented financial pressure on businesses and individuals. This will be the first in a series of articles that provides information in relation to bankruptcy and how…
Risk Watch Essentials - September 2020
Risk Watch Essentials - September 2020
Covid Analysis The tables and graphs below show that the Covid stimulus measures introduced have had a drastic effect on the number of insolvency and winding up procedures. For the July - September 20…
Insolvency Implications in 2020/21 Federal Budget
Insolvency Implications in 2020/21 Federal Budget
On Tuesday night, Treasurer Josh Frydenberg announced the 2020/2021 Federal Budget. In the Budget, new reforms were proposed to Australia’s Insolvency Framework to further support small business fro…
Completing a Proof of Debt
Completing a Proof of Debt
Receiving notification that one of your debtors has been placed into external administration can be a difficult time for a business.  A recurring question that arises from creditors in an external ad…
Directors beware – temporary insolvent trading protection may not be guaranteed
Directors beware – temporary insolvent trading protection may not be guaranteed
In March 2020, the Federal Government introduced a raft of measures to combat the economic impact of the COVID-19 pandemic, including legislation which provided directors with temporary relief (up to …
Menu