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Bankruptcy is a complicated process.

Use this bankruptcy help information to determine where you stand.

What is bankruptcy?

Bankruptcy is a process that protects those who cannot repay their debts and are unable to form a formal or informal agreement with creditors. While bankruptcy offers legal protection from any further action by creditors, it also imposes restrictions on the bankrupt person.

How do you become bankrupt?

There are two way to become bankrupt – voluntarily or by a court sequestration order.

Voluntary bankruptcy

You can apply for voluntary bankruptcy when owing any amount of money to a creditor. To do so, you will need to complete the below forms and file them with the Official Receiver, care of the Insolvency and Trustee Service Australia (ITSA):

• Debtor’s Petition
• Statement of Affairs
• A form acknowledging that you have read certain Prescribed Information

These essential forms can be accessed by following this link to the ITSA website, as can more bankruptcy help information. After you have applied for bankruptcy, Australian law designates a 7 day cooling-off period, during which time you are able to reconsider and withdraw your application for bankruptcy.

Bankruptcy by sequestration order

To be made bankrupt by court order, a creditor must instigate a bankruptcy petition against you. A creditor can only make you bankrupt if you owe a debt of $2000 or more and that creditor has won a judgment against you.

How is bankruptcy administered?

Bankruptcy is administered by one of two sources:

• By a registered private trustee or;
• The Insolvency Trustee Service Australia, which acts as trustee for personal insolvency administrations and other types of administrations where a private trustee is not appointed.

What is the role of a trustee?

A bankruptcy trustee’s overall role is to maximise the amount of money that unpaid creditors will be repaid through your bankruptcy period. As such, they have full legal control of all assets in your estate throughout the bankruptcy process.

A trustee has three main tasks:

• Converting any personal assets that are not protected by your bankruptcy into money. Assets that are protected by bankruptcy include essential household goods, personal items, superannuation and vehicles worth less than $6000.
• Guaranteeing that you make regular payments to the trustee to be passed on to your creditors, provided that your after tax income is more than $37,146.20. The size of these payments is variable according to the number of dependents you have, the amount of child support you are paying and other similar factors.
• Maintaining contact with your creditors.

What are the immediate consequences of bankruptcy?

A person who is an undischarged bankrupt has a number of responsibilities and limitations, including:

• Making all financial records available to the trustee
• Making all divisible assets available for sale to their trustee
• Surrendering their passport. A bankrupt person must apply for the Court’s permission to travel and may need to follow written conditions enforced by their trustee. Any break of these conditions or failure to return to Australia may result in the extension of bankruptcy or in criminal charges punishable by imprisonment.
• Informing your trustee in writing of any changes to your personal details like your name, address or income.

A bankrupt person is also prevented from:

• Working as a director or secretary of a company
• Holding some professional business licences, like a building or security license
• Trading as a registered business without informing third parties of their status as an undischarged bankrupt
• Incurring credit over the  indexed amount of $4,170.00 without informing a lender of their status as an undischarged bankrupt

Bankruptcy will also badly effect your credit rating, which services like phone companies and real estate agencies rely on to determine eligibility for certain products.

How long does bankruptcy last?

In Australia, the usual period of bankruptcy is three years – you will be due for discharge three years and one day after filing. This time period begins on the date that your Statement of Affairs is filed, so if you were made bankrupt by a sequestration order it is important to lodge your statement of affairs as soon as possible after you are notified.

If you fail to comply with your trustee during your bankruptcy, your trustee may file an objection to your discharge and extend your bankruptcy to five or eight years. Common grounds for objections include:

• Failure to provide information
• Failure to disclose the extend of your income
• Failure to pay income contributions
• Failure to disclose all assets and/or creditors

The biggest bankruptcy help will be to follow all instructions from your trustee diligently.

Where can I get more bankruptcy help?

For more bankruptcy help, see Bankruptcy FAQ’s and Bankruptcy: The Aftermath or visit the ITSA’s website.