Generally, the idea of bankruptcy has always been viewed in a negative light. Ideas of gambling away assets or poor financial management skills come to mind. But imagine you are a business owner and you are being pressured by creditors to pay your debts. You cannot afford to pay your employees or even pay your children’s school fees. You cannot get a bank loan, you also owe tax and your credit cards have been cancelled. What do you do?
The better question is, what is voluntary bankruptcy?
Voluntary Bankruptcy is exactly what the title suggests – it is when a person (debtor) voluntarily elects to go bankrupt. The law provides that a debtor can petition for his or her own bankruptcy. In other words, it means you can individually file a petition to declare bankruptcy.
It must be noted that there are alternatives to bankruptcy that you should consider before making the final decision. The process of completing a petition to declare bankruptcy can be complex and a difficult task, so it is advisable you talk with an insolvency lawyer specialist about how to go about it.
Are you eligible to undergo voluntary bankruptcy?
Generally, any debtor can file a petition. This means that the law extends the application of bankruptcy to persons who are not Australian citizens, to those under 18 years of age and to persons who are Parliament members. However, if you are a non-Australian citizen, you are required to prove that you have connections with Australia: s55(2A) Bankruptcy Act. You can do this by demonstrating that you are personally present or ordinarily reside in Australia, if you have a house or place of business in Australia, if you carry on business in Australia by means of an agent or manager or if a member of your firm or partnership carries on business in Australia.
So what are the steps of filing for bankruptcy?
1. You must File a Debtor’s Petition:
A Debtor’s Petition is an application accompanied by the Statement of Affairs presented to the Official Receiver. This documentation is very important, as it forms the basis of information that the trustee receives in order to calculate and distribute your assets to pay debts. It is a very comprehensive process and a 3-year period commences automatically after you have been approved. It is crucial that you provide all correct information about your assets. For example, if after a year of submitting your Debtor’s Petition, you have forgotten to include that you owned a Harley Davidson motor bike, the office will require you to amend your Debtor’s Petition and the 3-year period will start over again once you have re-filed the requested documentation.
2. The Official Receiver receives the documentation mentioned above and will decide whether to accept and declare bankruptcy:
Under the Bankruptcy Act, the Official Receiver has the discretion as to whether they should accept your application. They must accept and declare bankruptcy unless:
- on the information, they conclude that you are likely to become solvent again. This means, for example, your business is seasonal (like selling apples) and the apple growing season is looking good this coming year and you will sell enough stock to repay your debts;
- you are unwilling to pay your creditors;
- you have been declared bankrupt within the previous 5 years; or
- you have been declared bankrupt 3 times before: s55EAA.
After you have lodged the required forms:
The Australian Financial Security Authority (AFSA) processes your completed Debtor’s Petition and Statement of Affairs as soon as possible. This prevents you from withdrawing your forms and changing your mind. Once the petition is approved, you legally become bankrupt.
The creditors you have identified in your Statement of Affairs form will accordingly be notified of your bankruptcy from AFSA. Your trustee will receive copies of your forms and accompanying documentation and will begin assessing your financial debts and situation.
The idea of seemingly never-ending financial debts and your business falling apart is definitely a testing and worrisome time for anyone. If you believe you need to file a petition to declare bankruptcy, LegalVision will gladly assist. Give us a call on 1300 544 755.