What is Bankruptcy?
Bankruptcy is a legal status that declares an individual insolvent, meaning they are unable to pay their debts when they become due. It is regulated by the Bankruptcy Act 1966 and overseen by the Australian Financial Security Authority (AFSA). By entering bankruptcy, the debtor obtains relief from most of their debts and provides an opportunity to rebuild their financial situation.
Criteria for Bankruptcy
To be eligible for bankruptcy in Australia, an individual must meet certain criteria, including:
Minimum debt threshold: The debtor must owe at least $10,000 in unsecured debts.
Residency requirements: The debtor should either reside in Australia, have a place of business in Australia, or have substantial property or other assets in Australia.
Insolvency: The debtor must be unable to pay their debts as they fall due.
What Happens When You Are Made Bankrupt?
When a person is declared bankrupt, the following key events occur:
Appointment of a trustee: AFSA appoints a registered trustee to manage the bankruptcy. The trustee's role is to assess the debtor's financial situation, distribute any available funds to creditors, and ensure compliance with bankruptcy laws.
Ceasing control of assets: The debtor's assets, excluding those protected by law or considered necessary for their basic needs, are transferred to the trustee. This may include real estate, vehicles, savings, and investments.
Restriction on financial activities: Bankrupt individuals face certain restrictions, such as not being able to obtain credit without disclosing their bankruptcy status, acting as a director of a company, or traveling overseas without the trustee's permission.
Debt recovery and discharge: During bankruptcy, the debtor must cooperate with the trustee and provide information about their financial affairs. After a designated period (typically three years, but can vary), the debtor may be discharged from bankruptcy, resulting in the cancellation of most remaining debts.
Why you could contact us if you are considering bankruptcy
Bankruptcy is a complex legal process that can significantly impact your financial future. Here are a few reasons why it is crucial to seek the assistance of a lawyer when considering bankruptcy:
Expert guidance: A qualified bankruptcy lawyer possesses in-depth knowledge of the bankruptcy laws, procedures, and potential alternatives. They can assess your specific situation and provide tailored advice on whether bankruptcy is the best option for you.
Asset protection: A lawyer can help identify exemptions and strategies to protect your assets from being seized during bankruptcy. They can navigate complex issues related to property ownership, joint debts, and secured debts to ensure your interests are safeguarded as much as possible.
Legal representation: Having a lawyer by your side ensures that your rights are protected throughout the bankruptcy process. They can negotiate with the trustee and handle the legal documentation.
Alternative options: Bankruptcy may not always be the most suitable solution for everyone. We can explore alternative debt relief options such as debt agreements or personal insolvency agreements, which may offer more favourable terms based on your circumstances.