Bankruptcy
With the rise in consumer credit limits and the erosion of the corporate veil for company directors, personal insolvency issues need to be monitored on an ever increasing basis. Bankruptcy results when a debtor is unable to pay his/her debts. A debtor may become bankrupt voluntarily by filing a debtor's petition together with his/her statement of affairs or involuntarily by a creditor's petition. The effect on the bankrupt is the same regardless of the manner in which the bankruptcy is initiated.
Voluntary bankruptcy
Voluntary bankruptcy involves the debtor completing a debtor's petition and a statement of affairs. The debtor's petition is an application to become bankrupt and contains only minimal personal details. The statement of affairs requires detail to be provided on the assets and liabilities of the debtor. These forms are lodged with the Insolvency Trustee Service Australia (ITSA) and once accepted the debtor becomes bankrupt. The period of bankruptcy is 3 years from the date of filing the statement of affairs unless extended to 5 or 8 years due to non-compliance with the law.
One of the benefits of lodging a debtor's petition is that the debtor may choose his/her trustee. The trustee must consent to act.
Another benefit may be that a debtor can proactively deal with their insolvency whereby bankruptcy is unavoidable. A debtor is able to present a debtor's petition even if there is a creditor's petition pending against him/her.
General effects of bankruptcy
Bankruptcy may affect the debtor in a number of ways:
- The bankrupt is known as an 'undischarged bankrupt'
- You are required to cooperate with the trustee
- You are required to attend meetings with creditors
- You must notify the trustee of all changes of name, address and contact details
- All property of the bankrupt vests in the trustee except certain household property, property used to earn personal exertion income, primary means of transport, life insurance and superannuation policies
- If your income exceeds a certain threshold you may be required to make certain contributions
- Legal action that has been commenced by the bankrupt is automatically stayed
- You must disclose the bankrupt status if dealing under an assumed name or business name
- You cannot be a director of a company
- You cannot obtain credit over $3358 without disclosing your status
- A bankrupt must surrender his or her passport to the trustee.
Should you wish to discuss the above choices or the best alternative available in your particular situation, please contact your local BDO adviser for a free initial consultation.
