What does bankruptcy really mean?
We would like to acknowledge that the following article came from Adam Halstead of Goldbergs Lawyers group which recently merged with WMD Law. Adam was interviewed on radio concerning bankruptcy and these are his views:
Most people have heard of bankruptcy but what does it really mean?
Being bankrupt might be described as the likely result of having too much debt. In legal terms, it is a process where a trustee is appointed to administer the affairs of a person who is insolvent. Insolvency arises if a person is unable to pay their debts when they fall due.
Credit and debt is the basis of the entire financial system. It is not unusual that someone may be late making a loan repayment or paying a bill, but it does not mean they are insolvent. There is a difference between temporary cash flow difficulties and insolvency. Insolvency is where there is no realistic prospect of meeting debts. It is also possible to have valuable assets and be insolvent (for example you might have a valuable property but be unable to attract a buyer)
How does bankruptcy happen?
- Make yourself bankrupt by a process called a “debtors petition”
- Most common situation – accumulated debt – no realistic prospect of repaying
- Unexpected long period of unemployment – significant obligations
- A creditor may serve a bankruptcy notice for a liability of $5000 or more – requires a response within 21 days
- After 21 days may then make an application for a “creditors petition” in Federal Court
- The court makes a sequestration order – bankrupts the debtor
- Law provides for other bankruptcy events as well, but failure to comply with bankruptcy notice is the most common
How common is bankruptcy?
- “Total personal insolvency activity” (also includes other situations such as insolvency agreements and debt agreements) of around 30,000 per year in Australia
- About 16,000 actual bankruptcies 2016-17
- Around Australia about a third of bankruptcies occurred in NSW for the 2016-17 year
- Most insolvency (4/5) arises from personal debts
- The remainder (1/5) is business related
What happens to a person who is bankrupt?
There usually will be three years from the filing of a document known as a Statement of Affairs during which a trustee will manage your affairs. The trustee has a range of powers including investigative powers, the power to seize and sell assets and distribute proceeds to creditors. You must also surrender your passport and seek permission to travel overseas.
Some assets are exempt such as tools of trade (up to a value approximating $3,700) and a car or motor cycle (up to a value of approximately $7,800). More importantly the home owned by a bankrupt is not exempt from seizure and sale in the bankruptcy.
You can continue to work and receive income but there are restrictions on directorships, some employment and you must disclose your bankruptcy.
What should I do if I am concerned about Bankruptcy?
Becoming a Bankrupt does not usually happen overnight. Debts accumulate and become unmanageable over time. Get some good advice about coming to arrangements with your creditors if you suspect that you might have difficulty in paying all your debts.
CEO & Accredited Specialist in Family / De Facto Law
Telephone: 9525 8688
Facsimile: 9526 2608