Are you thinking that you may need to declare yourself bankrupt?
This is a big step and it is important for you to understand the subsequent consequences if you do finally decide to declare yourself bankrupt. This includes the obligations and the rights applicable when you become bankrupt.
First of all, bankruptcy has a bad reputation – it is generally viewed in a negative light. But it is important to take note that being declared bankrupt can have positive consequences. As a general overview, some positive impacts from being declared bankrupt are as follows:
- Release from debts: Essentially, once you are discharged, you are released from most provable debts incurred before the bankruptcy.
- Relief from harassment, litigation and execution from creditors: Bankruptcy will generally prevent any harassment from unsecured creditors. All communications are transferred to your nominated trustee.
- Legal proceedings: In the event that legal proceedings against you have commenced, the proceedings can only continue through the trustee. However, claims that are considered very personal are exempt, e.g. personal injury or death of a family member claims.
What is a Nominated Trustee
Someone who takes administrative responsibility for the financial affairs of a bankrupt, along with the distribution of assets to creditors.
Now that we have dealt with some of the positive consequences, the harsh reality is there are various obligations and restrictions that apply if you are declared bankrupt:
- Ownership of property: As a bankrupt, you will lose your property which will then be vested in the trustee. The trustee will then nominate to sell your property in order to repay your creditors.
- Traveling Restrictions: There are also restrictions on travelling. You must be granted permission from the trustee for you to exit the country and go overseas.
- Impact on your reputation: Due to the general stigma the public has of bankruptcy, your bankruptcy will be recorded in the National Personal Insolvency Index (NPII). The NPII is a permanent record of bankruptcies that has occurred since 1928. Your bankruptcy may even be published in trade journals and local papers.
- Restrictions on getting credit: If you wish to borrow funds from a creditor, you may not borrow more than $5398 (2015, subject to changes in the National Insolvency Index) without advising your creditor/s that you are dealing with bankruptcy.
- Obligations to comply: You are also obligated to assist the trustee in winding up your estate. This will include producing relevant documents, undergoing examination of your financial affairs, notifying changes to earnings and income – just to name a few. If you do not comply with these duties and obligations, you may incur penalties from the court such as an extension of your bankruptcy for five or eight years (instead of the standard 3 years).
- Limitations on involvement in a company: According to the Corporations Act 2001, you are prohibited from being a director, promoter or manager of a company without leave (i.e. permission) from the court.
- Limitations in employment opportunities: Further restrictions apply in terms of certain types of employment and occupations. For example, you cannot sit in Parliament. More realistically, there are industry restrictions in professions such as barristers, solicitors, chartered accountants, security licence holders and tradespeople.
The general rule of thumb is that the more research and information you know about bankruptcy, the smoother the process will be. The process of declaring yourself bankruptcy can be complex and a difficult task, so it is advisable you talk with a specialist lawyer about whether you should go through with it.
If you would like to discuss your situation with one of our specialist lawyers at LegalVision, please give us a call on 1300 544 755. We will then assess your options free of charge and provide a fixed-fee quote if relevant.