Personal bankruptcy is the legal process in which you are declared, either voluntarily or involuntarily, unable to pay your debts. While going bankrupt is not ideal, bankruptcy can provide relief for individuals who are unable to pay their debts. Declaring personal bankruptcy allows a person to be discharged from most debts such as credit or tax debts, stops debtors having to deal with the individual personally, allows a professional investigation into the individual’s assets and hence allows the individual’s assets to be liquified to pay creditors.
When an individual becomes bankrupt, a trustee is appointed to manage the process and bankrupt’s estate. The trustee will be in charge of managing the bankrupt’s assets and repaying debtors. Bankruptcy lasts at least 3 years and 1 day. In some circumstances, this period can be extended.
Personal Bankruptcy advantages and disadvantages:
Advantages of bankruptcy:
- most unpaid debts will be discharged at the end of the bankruptcy period;
- wage garnishment will stop after the bankruptcy period;
- the bankrupt individual is still capable of earning an income with contributions payable to the trustee if a specified limit is exceeded;
- necessary personal items such as clothing, furniture, tools of trade and certain assets will be allowed to remain in your possession.
- it is likely your superannuation will be protected and will not be accessible by the trustee to pay debtors;
- creditors can no longer contact you and must deal directly with the bankruptcy trustee;
- a bankrupt induvial can maintain ownership of their car if it is under a certain value;
- You do not need to disclose to your employer that you are bankrupt.
Disadvantages of bankruptcy:
- the bankruptcy of a director of a company disqualifies that individual from continuing as a director or managing a company;
- the individual must surrender their passport and cannot travel overseas without the prior consent of the trustee;
- once you are discharged from bankruptcy, you will be identified as a discharged bankrupt on the National Personal Insolvency Index and on credit reporting agency records for a certain period;
- you will not be discharged from certain types of debts, such as penalties, fines and HECS debt;
- bankrupts may fact employment restrictions in some professions and licenced trades;
- all personal monetary records and financial books must be surrendered to the trustee;
- bankrupts can only commence legal proceedings in relation to personal injury, their family, or with the permission of the trustee;
- a bankrupt can only apply for a credit loan up to a certain limit.
Personal bankruptcy can be a confusing and overwhelming experience. You must follow strict requirements if you are declared bankrupt, so it is important you are aware of your obligations and rights. If you are considering filing for voluntary bankruptcy or have recently been declared bankrupt, please do not hesitate to contact our experienced team at Butlers Business Lawyers on (02) 4929 7002 or email us at email@example.com for personalised legal advice.
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