Brief Summary of Bankruptcy
Cancelling all of your debts can be a load of your mind, but bankruptcy also contains many consequences such as removal of items in the household or even imprisonment. However, it should never feel like a punishment and is often seen as a last resort for many. There is the alternative way of becoming bankrupt, being where creditors, provided you owe them $5,000.00 or more, can lodge a creditors’ petition through the courts.
Frequently Asked Questions
What debts are cancelled in a bankruptcy?
Almost all debts are included: credit cards, unsecured personal loans, personal tax debts, GST debts, repossessed car loans, Centrelink debts and more.
Secured Debts – Mortgages and car loans are not cancelled. The creditor still has the right to repossess the property if you stop payments.
Current bills such as utility bills and phone bills are not regarded as debts and should not be included. If you do include them, you may cause that service to be disconnected.
What unsecured debts are NOT cancelled?
The bankruptcy act prevents certain debts from being cancelled. These debts include:
- Child support and maintenance
- Penalties that have been imposed by a Court
Will someone come around and take my possessions when I go bankrupt?
The short answer is no. All normal household items are protected under the bankruptcy act which includes furniture and appliances. Also included are cars that are valued up to $7,600.00, and tools of trade valued up to $3,700.00. Learn more about what property is protected during bankruptcy.
When does the doctrine of exoneration apply?
The doctrine of exoneration is a principle of law that can be raised when undergoing bankruptcy proceedings. It is used in order to ensure that a spouse can get an even share of the family home in case their partner was to declare themselves bankrupt.
What happens to my Car Loan in bankruptcy?
You can generally still keep your car, as long as you continue to make the scheduled repayments. Bankruptcy does not cancel a car loan, and is protected if its valued up to $7,600.00. Creditors can still foreclose on the car, so if you stop making payments on the car, they can and will repossess it. You should talk to us to get a better understanding of where you stand in terms of car loans and bankruptcy.
What will bankruptcy do to my Credit History?
Your bankruptcy will be noted on your credit history and remain there for five years. It will also be recorded on the NPII forever, a permanent government index generally not used for credit assessment, but is added to the system.
It is unlikely that you will be able obtain finance from mainstream creditors during this five-year period. Although, without any repayments to make, you’ll be able to save money again and afford bills and day-to-day expenses.
Will I still be able to rent a house?
Yes, you can still rent a house – rental agencies do not usually conduct credit history searches.
How much am I able to earn during bankruptcy proceedings?
There is no income restriction, but once you start earning over a certain threshold, you will be required to repay a certain amount to your creditors each week or month. Contributions work like taxes. Income up to a certain threshold is contribution-free, and 50% of money earned above that threshold is taken. Contributions are only paid for three years.
For updated thresholds, please refer to How much can you earn under bankruptcy?
What happens if I forget to include a debt?
If you forgot about a debt and remember it later, you should contact your trustee as soon as possible so that it may be added to your list of creditors.
Is there any money that my creditors cannot touch?
Personal injury compensation is protected from your creditors, and they can’t touch anything you bought with it. All superannuation is protected. However, if you apply for an early release of superannuation, then this money will no longer be protected.
What will happen to any tax refunds during bankruptcy?
If the tax office is one of the creditors, then any refund you are entitled to during the period of bankruptcy will be kept, then after three years, all debts are written off. Tax refunds received by you during the bankruptcy period will also be treated as income for income assessment purposes. Regardless of bankruptcy processing status, you are still responsible for lodging your own income tax returns.
Will bankruptcy affect my Centrelink benefits?
No. Centrelink benefits are protected.
Can I operate a business while I am bankrupt?
If you’re operating a business while in bankruptcy, you must trade under your own name and as a sole trader. During this period, you cannot be the director of a company, unless you are filing for corporate bankruptcy. Learn more about bankruptcy and employment in this in depth article on the subject.
Can I travel overseas during bankruptcy?
If you travel overseas during bankruptcy, it should only be for business or family reasons. You just have to apply to your bankruptcy trustee for approval.
Who will be my trustee?
AFSA will more than likely be your trustee.
Can I have my bankruptcy cancelled?
Yes, if you pay off all of your debts, including costs.
Find out more about the pros and cons of bankruptcy in order to help you make an informed decision about your financial options with Debt Mediators.
Updated September 2016