In Australia, bankruptcy, or personal insolvency, is governed by the Bankruptcy Act 1966. Here are some specific considerations for individuals faced with financial distress in Australia who are considering declaring themselves bankrupt.
Benefits of Bankruptcy in Australia
- Debt Relief: Bankruptcy provides individuals and sole trader businesses with relief from overwhelming debt by eliminating most unsecured debts. This can include credit card debts, tax liabilities, personal loans, and medical bills.
- Protection from Creditors: Once you declare yourself bankrupt, an automatic stay is put in place, preventing most creditors from taking legal action or pursuing debt collection efforts against you. This gives you relief from the pressure of creditors demanding payments.
- Debt Repayment Plan: An alternative to bankruptcy is a proposal put to creditors under a Part IX Debt Agreement or Part X Personal Insolvency Agreement. These processes allow you to propose a repayment plan to your creditors (to pay an amount less than 100 cents in the dollar), allowing you to make affordable payments over a specific and agreed period.
- Asset Protection: Certain assets are protected under bankruptcy laws in Australia. These include superannuation, necessary household items, tools of trade up to a specified indexed value, and a motor vehicle up to an indexed limit.
- Fresh Financial Start: Bankruptcy provides individuals with the opportunity for a fresh financial start once the bankruptcy period is completed, usually after three years. It allows you to rebuild your financial situation and make a fresh start without the burden of unmanageable debts.
Consequences of Bankruptcy in Australia
- Credit Rating Impact: Bankruptcy has a significant negative impact on your credit rating. It remains on your credit file for up to five years or longer, depending on the credit reporting agency. This can make it difficult to obtain credit in the future and may result in higher interest rates.
- Travel Restrictions: If you are bankrupt in Australia, you may face restrictions on overseas travel. You need to seek permission from your bankruptcy trustee before traveling overseas, and failure to do so can lead to criminal charges. Generally, if you have complied with your obligations and the Trustee does not require you to be present in Australia or consider you to be a flight risk, consent is normally given.
- Employment and Business Limitations: Bankruptcy can have implications for certain professions and business activities. Some professions, such as lawyers, accountants and builders (holding a building license) may have restrictions on practicing while bankrupt. In addition, a person who is bankrupt is disqualified from acting as a director or managing a company whilst an undischarged bankrupt. You may apply to the Court for permission to act in that capacity.
- Loss of Assets: Bankruptcy may require you to surrender certain assets that are available to the Trustee, such as real property or assets that exceed the allowable limits set by the Bankruptcy Act 1966. These assets can be sold by the trustee to repay your creditors.
- Public Record: Bankruptcy records in Australia are accessible to the public through the National Personal Insolvency Index (NPII) (a search fee is applicable). This means that your bankruptcy will be searchable by potential employers, lenders, and others.
It’s crucial to seek advice from a registered bankruptcy advisory service to fully understand the benefits and consequences of bankruptcy or its alternatives based on your specific circumstances.
Reach out to your local Rodgers Reidy office to arrange a free and confidential meeting to discuss your specific circumstances so you can make an informed decision.