The Realities of Bankruptcy
Unmanageable personal debt carries a lot of stress, and bankruptcy may be an answer to your problems. It is kind of like a legal reset button on your debts and finance, but there are serious consequences that you will need to understand as it can impact your current circumstances such as your ability to apply for credit, carry on a business or manage a corporation and travel overseas. Some realities of bankruptcy include but are not limited to:
Disclosure of bankruptcy status
According to Section 149 of the Bankruptcy Act 1966 (“the Act”), you will remain a Regulated Debtor until discharged automatically after three (3) years from the date you filed your statement of affairs. However, should you fail to cooperate with your Trustee in Bankruptcy or to comply with the requirements of the Act, your bankruptcy period may be extended to five (5) or eight (8) years by objection. Please see the article titled Bankruptcy Beyond the Three-Year Period for further information about the possible extension of Bankruptcy.
You will be considered as an “undischarged regulated debtor” and you will be restricted from obtaining credit and carrying on a business under another name other than your own without disclosing this fact to all persons with whom you deal. The restrictions are contained in Section 269 of the Act. In short, you shall not, without disclosing your undischarged regulated debtor status to:
- Obtain goods or services on credit, by hire purchase or cheque of $5,969.00 (subject to indexation) or more;
- Lease, hire or promise to pay for goods or services of $5,934.00 (subject to indexation) or more; or
- Promise to supply goods or services in return for payment of $5,934.00 (subject to indexation) or more.
Credit reporting agencies keep records of your bankruptcy for:
- 5 years from the date of the commencement of your bankruptcy; or
- 2 years from the date of the end of bankruptcy, whichever is later.
If you receive an inheritance, your entitlement to the inheritance is available to your Trustee in Bankruptcy to help repay your outstanding debts. This applies if the right to an inheritance arises before or during your bankruptcy.
You, or the executor of the will, must notify your Trustee in Bankruptcy of the inheritance within 14 days of becoming aware of the entitlement. Should you receive the inheritance before the commencement of your bankruptcy, you are required to disclose this information in your application. Upon the commencement of your bankruptcy, your Trustee in Bankruptcy can request supporting documents.
Upon the commencement of your bankruptcy, most of your unsecured debts such as credit cards, utility bills, overdrawn bank accounts etc will be captured in your bankruptcy. This means that you no longer have to repay them.
Although bankruptcy covers most debts, it does not cover certain debts, such as:
- Court imposed penalties and fines;
- Child support & maintenance;
- HECS & HELP debts (government student loans);
- Debts you incur after your bankruptcy begins; and
- Unliquidated debts (e.g. a debt where you and your creditor are yet to determine the amount).
You are still liable for the above debts and you will be required to contact your creditors directly to discuss payment options.
Secured creditors that hold security over your property (real estate or motor vehicles as an example) have the right to repossess the property if repayments are not met, so it is important to discuss with your secured creditors your intentions with the debt, or any alternative options available. If there is equity in the property, your Trustee in Bankruptcy will most likely take steps to sell the property.
Change of Name or Address or Employment, Occupation, Business or Profession
Section 80 of the Act requires that you, as a regulated debtor, notify your Trustee in Bankruptcy in writing of any change in your name and address, nature of your employment, occupation, business or profession that occurs during bankruptcy.
You are required to deliver to your Trustee in Bankruptcy your passport and you must seek written consent from your Trustee in Bankruptcy to travel overseas. It is an offence to travel overseas or do an act that is preparatory to leaving Australia (ie. booking flights) without the written consent. Your Trustee in Bankruptcy may ask for further details to consider your request.
During the period of your bankruptcy, it is your responsibility to ensure that taxation returns are lodged with the Australian Taxation Office as you did before your bankruptcy. Tax refunds for the income you earned before your bankruptcy are an asset that vest in the Regulated Debtor Estate and upon receipt, you are required to remit the refund to your Trustee in Bankruptcy.
Tax refunds for the income you earn after the date of your bankruptcy will form as part of your assessable income for compulsory payments. If you have an outstanding debt to the ATO, the ATO will offset post-bankruptcy refunds against your outstanding debt.
In the interim, if you have any questions, or your clients are experiencing financial distress, please contact Brodie Hilet or Neil McLean on (03) 9670 8700.
Brodie joined Rodgers Reidy in 2017, following around 7 years at a boutique insolvency firm. Gaining extensive expertise in in both Personal and Corporate insolvency appointments, restructuring and advisory appointments across a wide range of industries.