What Is Bankruptcy?

Bankruptcy isn’t just a scary word, it is a scary situation to find yourself in. Learn the meaning of bankruptcy and how it can affect you in the short and long term.

Bankruptcy is a legal procedure that means you are declared insolvent because you cannot pay your debts as they become due. It should be the last resort for anyone who has made every other effort to rectify their failing finances.

Filing for bankruptcy is a serious step, and should not be seen as an easy way to avoid paying outstanding debts. Although the end result may be that your debts are written off, this is not always the case. Plus, you will be forced to realise any funds from assets you own and pay them to your creditors, and this may include vehicles and even your own home.

Bankruptcy will change your life!

Bankruptcy should also never been viewed as making a fresh start. You cannot simply walk out of court a bankrupt and start your life over again as though nothing has happened. Bankruptcy has serious consequences and remains on your credit report for five years. Amongst other things, this can deny you the possibility of buying a home, obtaining car insurance, or even getting certain jobs.

If you declare yourself bankrupt, the court will appoint a private registered trustee from the Insolvency and Trustee Service of Australia to handle your case. If the bankruptcy is not voluntary and a creditor has made you bankrupt, it is their prerogative to choose the trustee.

It is the trustee’s job to investigate your financial affairs. This includes reporting any offences that may require prosecution, overseeing the sale of any assets you may hold, and collecting monies to pay to your creditors. A bankrupt must declare all their assets to the trustee, and these assets then effectively become the trustee’s property to dispose of. Bankrupts can lose their home, their car, their investments; in fact, anything that could be sold to produce funds to repay creditors.

Assuming you are earning at the time of your bankruptcy, your obligations may well extend beyond having to sell your assets. If your net income is over $32,614.40, then you will need to pay 50 cents on each dollar of debt that you have. If your income is less than this amount, you are not required to repay anything. It is the trustee’s job to work out this repayment plan, and he or she can sequester your wages if you fail to pay the required amounts.

Bankrupts may also be subject to other restriction. These include not being permitted to leave the country without permission, being denied the right to bring or continue any court action, being disqualified from acting as a trustee, playing a direct or indirect part in the management of a company or a business, or acting as a director of a company – unless these have been specifically sanctioned by the court.

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