Declaring Bankruptcy

by Fox Symes on March 9, 2011

If you have exhausted all your options in trying to service debt and feel you are unable to control your debts and cannot negotiate a reasonable or suitable arrangement with your creditors, then bankruptcy may be your best option.

In order to declare bankruptcy in Australia you will need to meet various criteria and disclose specific information to your trustee. There are multiple reasons you may need to declare bankruptcy, but there are some restrictions, concerns and aspects of bankruptcy which do have consequences. Make sure that you have looked at all available solutions as there are alternatives to bankruptcy which may provide a better solution to your debt problems. Bankruptcy should be used as a last resort for debt issues. It is designed to help people who simply can no longer afford to repay their debts. While the process of bankruptcy is straightforward, there are many legal consequences which you should know about.

The Process of Claiming Bankruptcy
To claim bankruptcy in Australia, you will need to first complete and lodge forms with a Registered Trustee or with ITSA (the Insolvency and Trustee Service Australia). It is highly recommended that you talk to someone who has professional experience in bankruptcy and can help you through the process. Not only will this make it easier on you but it will also help you to move through the process with less problems and concerns. Many benefits are available to those who work with a Registered Trustee through their bankruptcy.

There are 3 main forms that must be completed and lodged with ITSA for you to go through the process of declaring bankruptcy. These forms can be obtained through ITSA or through your Registered Trustee. These forms include a Debtor’s Petition, which outlines what you need to claim. A Statement of Affairs, which will outline your specific reasons for filing bankruptcy in the first place. Finally, you will need to sign various acknowledgements that will show that you, read by you, have received all of the prescribed information and you understand it.

The process is fairly straightforward and presents few problems for most people. If you fully cooperate with your Registered Trustee then you will remain bankrupt for 3 years at least. If there are issues or extensions, this could move to 5 or 8 years. Talk to your Registered Trustee to learn more about how this will affect your individual situation.

What Happens When You File?
There are various benefits in declaring but there are also drawbacks. If you declare bankruptcy you will be released from your current debts and your creditors will not be able to pursue you for these debts. There are exceptions to that rule, such as government fines and penalties required by the court to be paid. Additionally you cannot stop paying on child support and maintenance orders in general.

In addition to this your secured debts are treated differently. For example if you own a home with a mortgage and you fail to make you mortgage payments and they fall into arrears then the bank could repossess your home. You still must make and maintain payments on all your secured loans throughout your bankruptcy. If there are any guarantors or joint borrowers on any of your debts then the co-borrower and/or the guarantor remains liable for the repayment of the debt, in full. If that person or those people also file for bankrupt, then they will not be responsible for repaying the debt.

These are issues that need to be thought about and considered before you file for bankruptcy.

Should You File for Bankruptcy?
By declaring bankruptcy, you are admitting that you have been unable to manage your debts and that you are insolvent. There are consequences to bankruptcy. Firstly your credit report will be significantly impaired and you will have difficulty obtaining credit for a period of time, and that could be for a period of up to 7 years. You may have to pay income contributions to your Registered Trustee as payments towards certain debt in order to satisfy your creditors. This depends on your income and should be discussed with ITSA or a register trustee. Additionally you may be forced to sell any significant assets you own and have equity in.

Many people unnecessarily avoid bankruptcy because they are ill informed about its affects or have a distorted understanding of its consequences. Bankruptcy is rarely as bad as people imagine and is sometimes the best option. By avoiding it you can often be putting yourself in a worse situation. For further information you should contact ITSA or a registered trustee to discuss bankruptcy further.

Fox Symes is the largest provider of debt solutions to individuals and businesses in Australia. Fox Symes helps over 100,000 Australians each year resolve their debt and take financial control.

If you would like to find out more about bankruptcy contact us on 1300 361 204

 

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