What is Bankruptcy?
Bankruptcy Articles > Article: What is Bankruptcy ?A bankruptcy occurs when an individual (or an organization) is unable to pay their creditors. A bankruptcy does not occur until this impairment has been legally declared by a court.
A declaration of bankruptcy can happen two ways:
- Involuntary Bankruptcy - Creditors can file a petition for bankruptcy against a debtor to recover a portion of the money they are owed.
- Voluntary Bankruptcy - Filed by the debtor once their debt becomes too overwhelming to pay back. Voluntary bankruptcy is fapr more common than involuntary bankruptcy.
What happens to my debts when I file Bankruptcy?
Unsecured creditors are unable to take action against you to recover the money owed. You will not be forced to repay these debts. An unsecured creditor is a creditor that does not hold security over your assets.
Will I have to repay any debts after I file Bankruptcy?
You will be required to repay:
- Any fine for unlawful actions
- Debts occurred from fraud
- Debts due to the Department of Social Security
- Secured creditors (mortgage companies, bill of sale, etc)
- All debt incurred after you file Bankruptcy
How do I repay my debts after I have filed bankruptcy?
One goal of bankruptcy is to take the pressure off the debtor; you will not have to make payments to the majority of your creditors. However, you will be required to pay your trustee. Your trustee will then pay the creditors for you. These payments are made on a 'voluntary' basis first. If the voluntary payments are not made, your trustee can notify your employer to garnish your wages (take money directly from your paycheck before you receive payment).
Do I have to make a court appearance?
You might be required to appear before the Official Receiver or the Court. The court will investigate your affairs, when required, by mandating that you attend an interview.
Are creditors notified of my Bankruptcy?
Creditors receive notification in writing from the trustee as soon as possible. Creditors are also informed of the assets and liabilities you disclosed in your statement of affairs.
What are my rights once I become Bankrupt?
If you borrow money or make any purchases using credit that exceed $3,973 you must inform the creditor that you are bankrupt. If you do not let the creditor know of your bankruptcy, you can be prosecuted.
Likewise, you can continue running a business while bankrupt but you must inform partners of your status. You must ask the court for permission (under Corporations Law) to fill the role of director of a company or to participate in any management position.
To travel overseas you must obtain written permission from the trustee of your estate. You must notify the trustee of any change of name or address.
Are there specific guidelines I must follow under Bankruptcy?
Yes:
- Bankrupt persons are not allowed to dispose of any property before they file for bankruptcy if their intent is to defeat a creditor.
- Bankrupt persons cannot intentionally leave assets out of their disclosure statement.
- Bankrupt persons cannot deliberately obtain and use credit that they know they cannot pay.
- Bankrupt persons cannot incur debts over $3,973 without notifying the creditor that they are bankrupt.
- Bankrupt persons cannot travel abroad (leave the country) without their trustee's permission.
The penalties for these offenses vary. Upon conviction, the offender could serve from 6 months to 3 years in prison.
Will I lose my assets after the Bankruptcy is final?
Your trustee has the right to dispose of your property (sell the property) for the benefit of your creditors. Any item of value that belonged to you on the date of bankruptcy and any possession you acquire before the bankruptcy is discharged are included. These items include, but are not limited to:
- Lottery wins
- Equity in your home
- Stocks
- Prizes of value
- Shares
- Personal property of value
- Land
- Vehicles exceeding $5,800 in value
- Money in bank accounts
However, there are several assets protected by the Bankruptcy Act. Your trustee cannot sell these items to repay creditors. Assets protected by the Bankruptcy Act include:
- Household furniture
- Life insurance
- Primary means of transportation (up to $5,800 in value)
- Personal possessions
- Work related necessary items (up to $2,900 in value)
Can my bankruptcy be annulled?
A trustee can annul a bankruptcy when the debtor is attempting to pay their debts. The debtor must first fit one of these criteria:
- Debts and administration costs must be paid in full.
- The debtor makes an offer of compensation to the creditor and the creditor accepts. This is called a composition. A composition is an offer of money to the creditor. This offer is considered the final payment of the bankrupt party's debt.
- Under Section 153B any party declared bankrupt can apply to have their bankruptcy annulled if they believe they were unfairly declared bankrupt.
- The bankrupt party's trustee offers their creditors a monetary arrangement where the debtor pays the creditor over a period. When payment is completed, the bankrupt party's debt is paid in full.
