Are you having financial difficulties? Are debt collectors pursuing you? Do you need a fresh start?
Personal bankruptcy can be stressful and take a serious toll on your mental and physical wellbeing.
Clifford Gouldson can help to ease the stress of bankruptcy by working with you to ensure you understand all financial options available and by prioritising your assets and happiness.
Bankruptcy (Personal Insolvency)
If you are experiencing financial difficulties and are unable to pay your personal debts, bankruptcy may be an option for you. It is a legal process where a person is declared unable to pay their debts. It provides relief by releasing you from most debts and in effect, allowing you to start fresh.
There are two ways a person can enter into bankruptcy:
- Voluntary bankruptcy where a person voluntarily completes and submits a Bankruptcy Form to the Australian Financial Security Authority; or
- Sequestration Order being the result of Creditor’s Petition which is a court process where a creditor can make a person bankrupt.
Bankruptcy normally lasts for 3 years and 1 day.
There are strict obligations and limitations imposed on a bankrupt individual so before declaring bankrupt, a person should consider the following:
- Not all debts are cleared from bankruptcy
- A bankrupt individual’s ability to travel overseas can be limited and can be made to surrender their passport
- If a bankrupt individual earns over a set amount, they will be required to make payments to the bankruptcy trustee
- For a certain time period, a bankrupt individual cannot act as a company officer and cannot trade under a registered business without disclosing their bankrupt status.
If a debtor owes an individual or a company creditor at least $5,000** and that creditor has obtained a final judgment or order relating to that debt, then a Bankruptcy Notice (BN) may be an option.
A BN is a formal demand against a debtor to make payment of debt/s based on a final judgment or order that is less than 6 years old.
A debtor has 21 days** from receipt of the BN to make full payment of the debt/s or otherwise reach an agreement with the creditor to settle the debt/s.
**Note: In the current COVID-19 climate, the government has raised the minimum threshold to at least $20,000 and the response time to 6 months until 31 December 2020
A bankruptcy notice gives the person six months* to comply from the date you serve the notice. If they don’t, they are committing an act of bankruptcy.
A Creditor’s Petition (CP) is a Court process under the Bankruptcy Act 1966 (Cth) whereby a creditor seeks an order from the Court to make a debtor bankruptcy (i.e. sequestration order).
The CP process may only be used by a creditor if the following criteria is met:
- the debtor owes the creditor at least $5,000**;
- the debt/s is / are for a specified sum of money;
- the debt/s is / are payable either immediately or at a certain future time; and
- the debtor has committed an ‘act of bankruptcy’ as defined in section 40 of the Bankruptcy Act 1966 (Cth) within 6 months prior to the creditor filing a CP.
**Note: In the current COVID-19 climate, the government has raised the minimum threshold to at least $20,000 until 31 December 2020
Personal Insolvency Agreements (Part X Agreements)
A Personal Insolvency Agreement (PIA), also known as a Part X Agreement because it is found in Part X (Part 10) of the Bankruptcy Act 1966 (Cth), may be an option for individuals who are experiencing financial difficulties, and possibly facing bankruptcy .
A PIA is an agreement between a debtor and his or her creditors by way of a Deed and formally records how the debtor will satisfy their debts without becoming a bankrupt.
A debtor must first make a proposal to his or her creditors regarding a PIA. That proposal usually includes details about selling some assets, making payment to creditors over a specific period, suspension of all creditors claims during the term of the PIA and if necessary, payment to creditors of amounts lower than the full amount. If the creditors accept a debtor’s proposal, they can then proceed to enter into a PIA.
You can find out more on these pages:
If you would like tailored, expert legal advice regarding bankruptcy, contact a member of our Litigation + Dispute Resolution team.