Brief Summary of Bankruptcy
Personal bankruptcy and debt are huge problems in Australia. Bankruptcy provides a way for debts to be cancelled, allowing you to get on with your life. This may sound too good to be true, but there are certain consequences (none of which includes imprisonment or seizing your furniture), so you should be clear how to go bankrupt.
Find your way through your toughest financial times by legally ‘declaring’ that you can’t repay debt (hence, declaring bankruptcy). Most people who declare bankruptcy do so voluntarily. Creditors, provided you owe them $5,000 or more, can also make you bankrupt by lodging 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, and more.
Centrelink debts are also covered.
Secured Debts – Mortgages and car loans are not cancelled. The creditor still has the right to reposes the property IF you stop payments.
Current bills (phone, electricity, gas) are not 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 (furniture, appliances, etc). A car up to a value of around $7,600.00 (wholesale price) is also protected. Tools of trade are protected up to a value of $3,700.00. However, if you have expensive items (valuable antiques, large diamonds, a Rolex), these items may be taken.
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. Creditors can still foreclose on the car, so if you stop making payments on the car, they WILL repossess it. You should talk to us to get a better understanding of where you stand here.
What will bankruptcy do to my Credit History?
Your bankruptcy will be noted on your credit history and remain there for seven years. It will also be recorded on the NPII, a permanent government index generally not used for credit assessment.
It is unlikely that you will obtain finance from mainstream creditors during the seven-year period. Many people find this idea daunting, given that they have been living on credit for many years. Without any repayments to make, you’ll be able to save money again and afford your 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 conduct credit history searches (none that we are aware of). They can’t conduct a credit history check without you signing a permission/consent form either.
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 make a contribution to your creditors. 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. 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. After three years, any debt still owed is written off. You may retain tax refunds after bankruptcy discharge. 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 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 operate a business while in bankruptcy, you must trade under your own name and as a sole trader. During this period, you can not be the director of a company.
Can I travel overseas during bankruptcy?
If you travel overseas during bankruptcy, it should be for business or family reasons. You have to apply to your bankruptcy trustee, and they would be unlikely to let you go for a holiday in Fiji if you just filed for bankruptcy.
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.