Bankruptcy happens when a person cannot pay his debts and has to appoint a trustee to control and protect his finances and assets from legal action filed by creditors. Creditor’s interests are also protected with the declaration of bankruptcy. It is through an independent person that is given control over the investigation of the affairs as a way to manage the distribution and collection of the assets of the bankrupt.
A person is legally declared insolvent when he cannot pay his debts when they become due. A person can also become bankrupt when his assets cannot be sold or borrowed from as a way to pay debts.
How do you become bankrupt?
Lodging a Statement of Affairs and a Debtor’s Petition to the Official Receiver can make you bankrupt. However, you can only be declared bankrupt as soon as an estate number is issued by the Official Receiver based on the process of the Debtor’s Petition.
The other way for you to be declared bankrupt is through a “Creditor’s Petition” lodged by a creditor to the Federal Court. Before a creditor could do this, they need to have a judgment obtained on the debt. Then the creditor has to serve a Bankruptcy Notice to the debtor. The petition to the Federal Court can only be filed when if the debtor fails to pay the debt before the expiration date of the Bankruptcy Notice.
What happens to you during bankruptcy?
These are the scenarios that will happen to you during the bankruptcy period:
- You cannot borrow money over the indexed amount without informing a lender about your bankrupt status
- You cannot fill any company officer position
- You are to make available all records and books of financial statements. This includes the books of associated bodies such as trusts and companies
- You cannot do business using a registered business name without telling the bankrupt status to potential customers. However, trading under your name is allowed
- Your divisible assets should be made available to the trustee
- You are obliged to surrender your passport and overseas travel will be limited
What assets are considered non-divisible property?
All the bankrupt’s divisible assets will be administered and controlled by a trustee. The non-divisible property a trustee cannot control includes:
- Superannuation payments
- Essential household items and clothing
- Sentimental property
- Tools of trade that fall within the parameters of an indexed amount
- Payments received as compensation or damages
- Endowment or life insurance policies
- Car ownership that falls within the parameters of an indexed amount
How long before bankruptcy is lifted?
Three years from the filing of the Statement of Affairs automatically lifts the bankruptcy. The bankruptcy can, however, extend to five years when an objection is lodged by a trustee. A trustee will only object if:
- The bankrupt leaves Australia without obtaining proper authorisation
- Bankrupt’s failure to cooperate
- Bankrupt misleads information on an indexed sum
- Bankrupt continues or starts to manage a company without a permit from the Court
The final word
Can filing for bankruptcy the only solution you see to extricate from insurmountable debts? Or are you thinking about whether declaring bankruptcy offers the best resolution to your financial problems? Get help with bankruptcy by turning to professionals who can properly assist you in turning your life around especially with all the legal implications associated with this situation.