What Is Involved In Bankruptcy?
What are the basics of declaring yourself bankrupt in Australia?
Bankruptcy is a legal process that releases the person who submits for bankruptcy from all their debts. In Australia bankruptcy is a term used for the individual rather than a business. Any individual who is facing financial trouble is able to declare bankruptcy. The Australian Financial Security Authority handles most bankruptcy cases and will appoint someone to handle your assets and finances in order to be protected from any legal action by the person you owe money. A creditor may also take steps to having you declared bankrupt through the courts. This is usually when your debts are tied to assets that they will be able to claim once you declare bankruptcy. Generally, bankruptcy lasts three years.
Before you enter into bankruptcy and start the process of becoming bankrupt it is important that you have a full understanding of what you are getting yourself into. There are a number of factors that go into bankruptcy and it can have either a very positive or very negative effect on your life. Depending on what you want to do in your future it is important to consider very carefully how bankruptcy will affect your job prospects and ability to borrow in the future.
When you become bankrupt, a trustee is appointed to handle your bankruptcy. Their role is to take control of your finances and assets and to then use those things to pay back your creditors. This involves selling off the assets and coming up with as much money as possible to pay off your debts. The total number of assets may not fully cover the amount of debt but this debt will be written off after you have sold your assets. You will also be forced to pay a portion of your wage to your creditors, which your trustee will have access to a divide among them.
You should also be aware that if you are in debt that your creditors are able to bankrupt you. This is something you need to consider if you've had any long term debt, as if you haven't been paying it off your creditors are then able to take you to court to and force you into bankruptcy. Due to this it is a good idea to talk to someone about your debts sooner rather than later. You'll want to assess all your options including other forms of bankruptcy as well as informal agreements you can negotiate with your creditors.
There is no minimum amount for going into bankruptcy so if you have debts you are unable to pay, no matter how much they are you can enter into bankruptcy. For a creditor to force you into bankruptcy however you need to owe them more than $5,000.
What Are The Positives Of Going Bankrupt?
We look at the positive effects of going bankrupt on your life
There are very few true positives to going bankrupt which is why you should assess all options available to you before declaring bankruptcy in Australia. One positive is the offer of a fresh start, clearing your debts so you are able to start a new. You can also continue to earn a wage up to a certain limit, however, any money over this limit is likely to go to your creditors. Another positive is that your creditors must stop pursuing you, whether through the courts or through phone calls and home visits.
Bankruptcy can be good for dealing with your creditors in a quick manner. Once you have declared bankruptcy your creditors have to stop call or requesting payment as soon as your bankruptcy has been accepted. If any of your creditors have brought out legal action against you, then this is also stop immediately after you have your bankruptcy is accepted. Then a trustee handles payments to your creditors with immediate effect.
Bankruptcy tends too last 3 years and when you earn over a certain amount you will have to continue paying to your creditors over that period. This is important to remember that whilst bankruptcy has instant results in getting your creditors off your back, you will still be paying back your creditors over that 3 year period, so it is not a quick process. However, during this 3 years, your creditors are not allowed to contact you or seek reimbursement.
What Are The Negatives Of Going Bankrupt?
We look at the negative effects of going bankrupt on your life
There are a number of negative impacts that going bankrupt can have on your life. The main one is a trustee having full access and control over your finances. Your trustee will be in charge of selling your assets, recovering any income over a certain limit and investigating your financials, possibly recovering property you have transferred to someone else. Basically you lose full control over your finances and assets, draining your earnings over a certain amount when needed.
Being bankrupt does not affect your ability to earn a wage and work, unless you are part of specific industries. When you are earning an income, some of that money could go to your creditors and most of your tax reimbursement will also be given to your creditors. The sorts of incomer they consider include wage, tax refund, tax benefits, superannuation, pensions (though your superannuation is protected), profits from business, income from overseas, loans and income paid to other entities. The trustee is in charge of deciding how much of your wage should go to your creditors. They will take into consideration any hardships you face such as medical bills, child support, travel expenses for work and rent.
Your credit rating will also be negatively affected making it extremely difficult to borrow or get credit in the future. Your bankruptcy will appear on your credit report for five years and on the National Personal Insolvency Index forever. This will also affect your ability to rent, get basic utility’s connected without a bond, obtain a bank account or have restrictions place on the account and if you obtain a certain amount of credit you must inform the lender that you were bankrupt which can affect their decision.
Not having the ability to access credit may seem like something that will not affect you at the moment and you may consider this almost to be a positive as you will not be able to get yourself further into debt. However, while you might not think it is that bigger deal, not having the ability to borrow long into the future can have a serious impact on your life. You may never get a mortgage, be able to borrow for investment opportunities or to set up your own business. These things may matter to you more in the future and hence it is important to consider this effect in the wider scope of bankruptcy.
Your employment or business can also be effected. You are required to pay contributions when you earn over a certain limit, you cannot be director of a company, you are unable to manage a company unless given permission, you may also be unable to work in certain professions and be without access to licenses needed to work in certain professions, you will be unable to hold public positions and if you own a business you must inform everyone that you trade with that you are bankrupt. Failure to do this can lead to punishments and criminal prosecution.
You also will have the ability to travel overseas effected. You may have to submit your passport to your trustee and will need the trustee’s permission in order to travel abroad. You will also not be cleared of all debts and your assets will be used to pay back some of your creditors including home loans. However, if you fall short of the payment amount through your assets the bankruptcy will cover this. You will also have to pay fines, child support and penalties.
What Happens To Your Personal Assets When You Declare Bankrupt?
Find out what you stand to lose and what you will be able to keep when declaring bankrupt
Assets you are able to keep include:
Regular household goods such as furniture, television and computers
A car with a value less than $7,500
Tools used for work up to the value of $3,650
Bank accounts up to $1,000
Life insurance, injury compensation payments and superannuation contributions
Assets that are likely to be taken from you include:
Any real estate
Cars worth more than $7,500
Antiquities and luxury items such as high end electronics
Tools for work that exceeded $3,650 in value
Artworks and jewellery of value
Inheritance, winnings and tax refunds
Any money over the $1,000 limit in your bank account
One of the biggest problems with bankruptcy and the reason creditors often push for it is that you will be forced to sell off assets that cost over a certain amount. This can be anything from your home to jewellery. Your car will also be sold if it is over a certain price, so you could be without a home and car in a very short space of time.
Bankruptcy can be quite the personal invasion into your life, opening up your finances and assets for sale. There are alternative roots to talk including informal agreements, part 9 debt agreements and insolvency agreements. If you are thinking of declaring bankruptcy it is important that you look into all your options. Bankruptcy is and should be a last resort for your debt problems due to the stress it causes and the huge impact on your life.
In the end it’s not just your finances and assets that you lose control of it’s also a lot of your freedom. You lose the freedom to travel, the freedom to easily trade with other business, the freedom to borrow for a home or investment venture in the future and the ability to have credit cards. Unfortunately, many of these things are lost for a lot longer than your assets and are hard to get back. If you consider your debt completely beyond repair or help then maybe bankruptcy is right for you, but if not you should consider some of your other options.
Is Bankruptcy Right For Me?
There are other options you should consider before going bankrupt
If you are considering bankruptcy, the chances are that you are in pretty bad debt and are struggling to see another way out. But there are other ways out there! You don’t have to enter into such a life changing form of debt repayment in order to eliminate debt from your life. There are other, less abrasive forms of bankruptcy such as a part 9 debt agreement as well as options that don’t involve bankruptcy at all. That means no defaults or black marks against your credit rating, no restrictions on travel or working and a better overall outcome for you.
If you have struggled to get out of debts using budgeting before, don’t give up hope. You may simply need the help of a debt counsellor to make sure that you get out of debt and stay out of it to. A Get Out Of Debt Today, we will help you plan, budget and save to reduce your debts and save your credit rating. Don’t enter into bankruptcy until you have had a free consultation call with Get Out Of Debt Today, where you will be advised on your best course of action.
Before entering into bankruptcy it is important to access and consider all your options. Bankruptcy is often viewed as a last resort and should never be undertaken without talking to an expert. Get Out Of Debt Today can help you get back on your feet without having to declare bankruptcy. We have a team of professional negotiators and budget planners that can find the right way to help you get out of debt. The restrictions and black marks placed on you by bankruptcy can be avoided though proper planning and budgeting. Call Get Out Of Debt Today on (02) 9011 7919 and start on the path to a debt free life.