The effects of bankruptcy can be far-reaching, perhaps in ways you hadn’t considered affecting more than just you personally.
If you are subject to bankruptcy proceedings or are considering filing for bankruptcy voluntarily, you should reflect upon the following consequences to ensure you understand the full impact.
How long will my bankruptcy last?
If you apply voluntarily, or a sequestration order is made against you, you are required to file a statement of affairs setting out your assets and liabilities.
The period of bankruptcy normally lasts for three years and one day from the day you file your statement of affairs. In some cases, a trustee can lodge an objection to the end of your bankruptcy and have the period extended for up to eight years.
Your trustee in bankruptcy may be an individual or it may be the Official Trustee in Bankruptcy.
Can I travel overseas whilst bankrupt?
When you become bankrupt, you must provide your passport to your trustee. You will need to seek written permission from your trustee if you wish to travel overseas.
Warning: It is an offence to travel overseas without your trustee’s written consent.
You are able to make a request to your trustee for permission to travel, however, your trustee doesn’t have to approve it. Even if your trustee provides you with consent, he or she can place restrictions on your travel, including that you pay a security bond.
What are the implications for my income, employment and/or business?
It may come as a surprise, but you can earn an income whilst bankrupt.
As a bankrupt, you are able to earn an income up to the protected amount per year. As at November 2019, the protected amount for a person with no dependents is $58,331, net of tax, per year.
If you earn more than this, the funds which exceed the protected amount will need to be paid to your trustee as ‘compulsory income contributions’. These compulsory income contributions are used by your trustee to help repay your debts.
If you have dependents, then your protected amount increases based on the number of dependents.
Notes: the protected amount changes from time to time.
Check the current figure.
You must notify your trustee as soon as practicable if there is any change to your employer, to the income you receive, or if you stop working altogether.
Bankruptcy can also affect your employment in ways other than requiring you to forfeit some of your income.
If you are required to be part of a professional body or hold a specific licence for your job, you may find that you are unable to continue in that trade or profession if you are bankrupt.
Bankruptcy can have an impact on your ability to manage your own company.
If you run your own company you may find yourself with further consequences to consider. When you are bankrupt you:
- can no longer be a director of a company;
- must have written permission from a court of appropriate jurisdiction to allow you to continue to manage your company; and
- must disclose to everyone you deal with in your business your bankruptcy status.
Can I obtain credit if I’m bankrupt?
For a period of five years from the date you become bankrupt, or two years from when your bankruptcy ends, whichever is later, you must inform credit providers of your bankruptcy when applying for credit over a certain amount.
You can find the current limit here
Whilst your bankruptcy only lasts for a specific period, it will appear forever on the National Personal Insolvency Index (“NPII”). The NPII is a searchable public register listing insolvency proceedings in Australia.
Will I lose my assets if I become bankrupt?
Once you are declared bankrupt, your trustee has the right to take control over any divisible assets that belong to you, within prescribed limits, to be sold in order to repay your creditors.
Assets that are protected and exempt from realisation by your trustee include:
- vehicles with a value up to a set amount;
- ordinary living items;
- life insurance policies;
- superannuation held with a compliant fund;
- tools used to earn income up to a set amount; or
- money up to a set amount.
Examples of assets your trustee may be able to access include:
- money exceeding the protected amount;
- vehicles which value exceed the protected amount;
- real property;
- shares; or
You must declare all your assets during your bankruptcy. If you conceal or attempt to remove assets out of Australia, then you may be subject to adverse consequences.
What happens to my debts if I become bankrupt?
Once you become bankrupt you will find that most debts are covered, meaning that you will no longer have to repay the money owed, and will be released from these debts at the end of your bankruptcy.
It is important to be aware that not all debts are covered by bankruptcy. Debts not included in bankruptcy include:
- court-imposed penalties and fines;
- child support and maintenance;
- HECS and HELP;
- debts incurred after your bankruptcy began;
- unliquidated debts, being a debt of which the exact amount is unable to be quantified; or
- secured debts.
You will remain liable for any of these amounts owed and it is your responsibility to negotiate with your creditor(s).
You will need to confirm with your trustee if your bankruptcy covers the following:
- Centrelink debts;
- debts with the Australian Taxation Office; or
- toll fines.
At Hunt & Hunt, we have a national insolvency team who can assist you with anything insolvency-related, including bankruptcy.
Our considerable experience across all jurisdictions within Australia can provide you with the comfort to know you are being looked after by the best during this stressful time.
If you require advice on bankruptcy specific to your circumstances, please don’t hesitate to get in touch
Article by Matt Gauci, Senior Associate and Jessica Egger, Lawyer