Bankruptcy is a confusing area of the law. Unfortunately, however, it’s one that individuals do at times need to deal with. This article sets out some important information relating to bankruptcy.
1. What does going bankrupt actually mean?
The first thing to note with regards to bankruptcy is that it relates to individuals, not companies. “Going bankrupt” generally means committing an “act of bankruptcy”, as defined in the Bankruptcy Act. Committing an “act of bankruptcy” includes, but is not limited to: acting in a manner which indicates that the debtor in question is bankrupt (such as refusing to pay invoices); failing to pay an amount that is due under the judgment of a court; or acting in a manner which is designed to delay creditors. There are many more actions which fall under the definition of an “act of bankruptcy”, but generally they relate to not being able to pay off liabilities.
2. What happens when an act of bankruptcy has occurred?
Once a debtor has committed an “act of bankruptcy” it is possible for any creditor to petition the courts in order to have the debtor declared bankrupt. The court will then be in a position to decide whether to grant a sequestration order, which is effectively an order declaring the person in question bankrupt. It is important to note that in order for an individual to be declared bankrupt they must owe at least $5000 to one or more creditors.
If the courts issue a sequestration order a trustee will be appointed as administrator of the financial affairs of the bankrupt person. Generally, the role of the trustee in bankruptcy is to sell the debtor’s assets and repay the debtor’s creditors. It is important to note that secured creditors will be paid first. Unsecured creditors may only receive a small percentage of the amount owing to them, if anything.
An individual will remain bankrupt until he or she is discharged, which usually occurs after 3 years, but sometimes earlier if a court orders it.
3. Can I declare bankruptcy?
You sure can. If you discover that you have committed an “act of bankruptcy”, as set out above, you can ask a court to declare you bankrupt. In other words, you will be declaring voluntary bankruptcy.
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