With the rise in consumer credit limits and the erosion of the corporate veil for company directors, personal insolvency issues need to be monitored on an ever increasing basis. Bankruptcy results when a debtor is unable to pay his or her debts.
A debtor may become bankrupt voluntarily by filing a debtor’s petition together with his or her statement of affairs or involuntarily by a creditor’s petition. The effect on the bankrupt is the same regardless of the manner in which the bankruptcy is initiated.
Voluntary bankruptcy involves the debtor completing a debtor’s petition and a statement of affairs. The debtor’s petition is an application to become bankrupt and contains only minimal personal details. The statement of affairs requires detail to be provided on the assets and liabilities of the debtor. These forms are lodged with the Insolvency Trustee Service Australia (ITSA) and once accepted a Sequestration Order is made and the debtor becomes bankrupt. The period of bankruptcy is 3 years from the date of filing the statement of affairs unless extended to 5 or 8 years due to non-compliance with the law.
One of the benefits of lodging a debtor’s petition is that the debtor may choose his or her trustee. The trustee must consent to act.
Another benefit may be that a debtor can proactively deal with their insolvency whereby bankruptcy is unavoidable. A debtor is able to present a debtor’s petition even if there is a creditor’s petition pending against him/her.
General effects of bankruptcy
Bankruptcy may affect the bankrupt in a number of ways namely:
- The bankrupt is known as an “undischarged bankrupt”;
- The bankrupt is required to cooperate with the trustee;
- The bankrupt is required to attend meetings with creditors;
- The bankrupt must notify his or her trustee of all changes of name, address and contact details;
- All property of the bankrupt vests in his or her trustee except certain household property, property used to earn personal exertion income, primary means of transport, life insurance and superannuation policies;
- If the bankrupt’s income exceeds a certain threshold he or she may be required to make certain contributions;
- Legal action that has been commenced by the bankrupt is automatically stayed;
- The bankrupt must disclose his or her status if dealing under an assumed name or business name;
- The bankrupt cannot be a director of a company;
- The bankrupt cannot obtain credit over $3,358.00 without disclosing his or her status
- A bankrupt must surrender his or her passport to the trustee.
Contact our office to arrange an initial consultation.