Becoming a bankrupt is very stressful for a debtor and their family. There can be a significant stigma attached to the bankrupt, a loss or respect and severe limits on their ability to provide for themselves and their family. It is therefore important to understand the effects of bankruptcy, whether voluntarily or through forced bankruptcy through creditors.
Impact of the Individual Bankrupt
Bankruptcy proceedings can last some years (they generally last 3 years) and during that time there are various obligations and restrictions imposed.
A bankrupt must attend any meeting of creditors that is required by the trustee in bankruptcy, and that requires answering probing questions in respect of their financial affairs. Bankrupts also have to provide all relevant books and records to the trustee so they may properly investigate their affairs. Trustee can also require bankrupt’s to be examined in court and if the bankrupt is not cooperative in questioning they may be guilty of an office. If an obligation of the court is not complied with, bankrupts can be imprisoned.
Where a bankrupt is able to continue working, given some professions such as solicitors do not allow bankrupts to work within the relevant profession, they can have significant reductions in their earning potential. Bankrupts are required to make contributions to the trustee if their income reaches a certain level. This means they only have a limited amount to live on while the rest is provided to creditors.
If a bankrupt requires credit (e.g. a credit card) to a certain threshold they must disclose that they are bankrupt. If they wish to travel they require consent as they must surrender their passport. If they are a director of a company they must stop managing the company, which can have a significant impact on their business if that is their livelihood.
Impact on the Bankrupt’s Family
Individuals with a connection to the bankrupt can be summoned and questioned by the trustee, Official Receiver of creditors. This can often include family members particularly if the individuals are considered to possess the bankrupt’s property, owe money to the bankrupt or possess information or documentation in respect of the bankrupt.
This can be a real imposition on family members who could find themselves in conflict between their relationship with the bankrupt and their duties to cooperate. If family members fail adhere to a summons for questioning they can be arrested. If they fail to answer a question they can be guilty of an offence.
Impact on the Bankrupt’s Property
On the date of bankruptcy, all of the bankrupt’s property vests in the trustee. There are some exceptions such as property held in trust, household property and property that is used for earning an income. Bankrupt’s can also keep their car, provided its value is below a certain threshold, otherwise the car may be sold and the proceeds up to the threshold provided to purchase a cheaper car.
Call us for Assistance
If you are a debtor or a creditor and require advice in respect of bankruptcy or alternative debtor arrangements LegalVision can provide you with legal advice. For assistance please contact our Client Care team on 1300 544 755.