News / Bankruptcy: Five Things you Need to Know

Bankruptcy: Five Things you Need to Know

Bankruptcy Five Things You Need To Know (1)

Things don’t always go according to plan, which the last couple of years have proven for many people.

Sometimes, despite all your best efforts and intentions, your financial situation can spiral out of control, leaving you facing bankruptcy.

If you have significant debt and are considering declaring bankruptcy, here are some quick facts you need to know:

1. Bankruptcy isn’t always the only option

Before you decide to declare bankruptcy, seek financial advice. There are free services available via the National Debt Helpline on 1800 007 007.

You may be able to avoid bankruptcy with a Part IX (9) debt agreement, which will allow you to pay a percentage of your debt over a period of time.

If you are a business owner, there could be the option to restructure your debts so they can be taken care of gradually. A Small Business Restructuring Practitioner (SBRP)  can help you with this process, which has become easier during COVID.

Bankruptcy is not an easy road so make sure you get some advice to rule out every alternative.

2. Bankruptcy has consequences

People declare bankruptcy when they owe a great deal of money and have no way of paying it back.

By declaring bankruptcy, you may think you’ll be able to walk away from your debts. However, there are quite a few steps involved and it’s not quite that simple. For example, once you have formally declared bankruptcy, a Trustee will be appointed to investigate your financial affairs. You can appoint your own or the Australian Financial Services Authority may appoint one for you at the request of the people who you owe money.

The Trustee will help you figure out if you have any assets that can be sold in order to give money to your creditors.

The main consequence of bankruptcy, other than the stress of going through the process, is that your credit rating is affected and it will be very difficult to borrow money for several years. In addition to this, you cannot act as Director of a business or own any assets over a certain value. Your ability to travel overseas may also be limited.

These consequences generally last for a period of three years and one day, although credit reporting agencies may keep records for five years and more. You may find you can’t borrow a significant amount without a guarantor to co-sign on a debt agreement.

3. Not all debts are absolved

Bankruptcy generally clears the following debts:

  • Credit cards
  • Store cards
  • Unsecured business and personal loans
  • Trade creditors
  • Payday loans
  • Utility bills

You cannot walk away from every debt when you are bankrupt. You will still be expected to pay for things including child support, HECS/HELP fees, court fines and your mortgage (your bank will probably arrange to sell your house so you can settle this debt).

4. You can still work and earn money while you’re bankrupt

There’s no time like the present to start fresh. Even though you won’t be able to borrow money while you’re bankrupt, you can still take the necessary steps to support your living requirements.

However, once you reach a certain amount of income (starting from around $54,000), a percentage of the money may be claimed to return to the people and businesses you still owe. This amount will vary depending on your circumstances, for example you will have a higher earning threshold if you are supporting one or more children.

5. A lawyer can help

Bankruptcy is a highly stressful situation for anyone and it doesn’t always happen because of bad habits or mismanagement. Sometimes you can be in debt without realising, or things can go wrong so suddenly that you don’t have time to get in control of your finances.

When you enlist the support of a bankruptcy lawyer, you’ll have the benefit of advice and assistance in all matters related to your personal debt. Pre and post-bankruptcy advice can help you with all or some of the following:

  • Creating and signing debt agreements
  • Guiding you through bankruptcy proceedings
  • Making you aware of your rights and the risks involved with your decisions
  • Sharing advice about bankruptcy notices and how to respond to one
  • Presenting a petition for bankruptcy to the Australian Financial Services Authority (AFSA)
  • Negotiating your debt settlement agreements
  • Sharing advice about your rights and obligations
  • Securing an early release from bankruptcy
  • Defending you against bankruptcy proceedings

If you’re facing bankruptcy but feel unsure about the next best steps, reach out to an experienced bankruptcy lawyer on the Gold Coast. Crest Lawyers specialise in the following:

  • Bankruptcy legal advice
  • Rights and obligations
  • Early release from bankruptcy
  • Personal insolvency
  • Bankruptcy litigation

Get in touch to find out more.

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