What Is Bankruptcy All About?
Bankruptcy is a very serious subject. Whether you’re considering voluntary bankruptcy, or being threatened with involuntary bankruptcy, you would be wise to read the following information carefully and seek independent legal advice without delay.
It’s extremely important to understand what bankruptcy is and how it works – Here at DebtConsolidation.com.au, we certainly don’t promote bankruptcy as ‘an easy way out’ of debt that some may pretend or believe it to be. There are alternatives available that should be considered.
Let’s look at the situation where a creditor is trying to get you to pay your debt(s) to them through the legal action of bankruptcy:
Step by step: Receiving a bankruptcy notice
- A Bankruptcy Notice provides that payment of the amount specified in the notice must be made within 21 days from the date the Notice is served on you.
- If payment is not made in full within the 21 day period, this will be deemed to constitute an Act of Bankruptcy.
- If you receive a Bankruptcy Notice, you shouldn’t ignore it. You would be wise to respond without delay or have your lawyer / legal representative(s) respond on your behalf.
Step by step: Creditor’s Petition
- If the judgment debt is not paid in full within the 21 day period (from date the Bankruptcy Notice was served on you), it’s probably that a Bankruptcy Petition (Creditor's Petition) will be issued and served on you.
- At this stage, the legal costs associated with the debt will increase by several thousand dollars.
- The Petition will specify a Hearing Date.
- If you do not pay the full amount of the judgment debt plus the additional legal costs prior to the Hearing Date, a Hearing will be held in the Federal Magistrates’ Court.
- At the Hearing, the Court will (as long as all of the creditor’s documents are in order) normally make a Sequestration Order. Basically the effect of this is to make you bankrupt.
- If you wait (to ‘the last minute’) to pay out the debt on the day of the Hearing, the costs will most-probably have increased by a further sum, being several hundred dollars. In this scenario, there would need to be an adjournment of (pause in) the case whilst the payment (transfer / cheque) clears.
Real insight: The effect of a Bankruptcy Order
- Firstly, a Trustee is appointed to administer your bankrupt estate.
- All assets held by you including any interest in your family home and other properties will pass to the Trustee. The only exceptions are personal items of minimal value.
- The Trustee may compel you to be questioned under Oath in relation to your financial affairs. This may be used to find out about any ‘hidden’ assets you may have tucked away somewhere.
- Assets disposed of in the period up to five years prior to the Bankruptcy date may be subject to review and the Trustee may have the right to seek the return of any gifts made or assets sold for less than their true value. So don’t bother trying to “sell” your house and car to a family member for $1 before going bankrupt (then continue to live in the house and drive the car), because the Trustee is able to seek the ‘return’ of such assets.
- You may be required to surrender your passport.
- Your credit rating will immediately be affected and it will normally prove impossible to obtain credit / loans / finance.
- During the period of Bankruptcy you will not be able to operate a business or be a Director of a Company or obtain credit without disclosing your bankruptcy status.
- Any income earned each year in excess of a very modest wage must be split equally with the Trustee. Therefore, the idea of affording an elaborate rental property and other comfortable lifestyle components may need to be reconsidered.
Real insight: I’ve just been served with a Bankruptcy Notice. What should I do?!
- If you ‘try to ignore it’ and ‘bury your head in the sand’, then you will most likely be made bankrupt.
- If you’re unable to pay the amount claimed in the Bankruptcy Notice in full within the 21 day period, you should make contact with the creditor / their legal representatives immediately in order to discuss the matter. In some cases, it may be possible to enter into an installment arrangement (paying the debt off over several months for example). Acting early will give you the best chance to fully explore any settlement options available (including possible refinancing or debt consolidation).
- It’s probable that you seriously need help to sort out your finances. An insolvency accountant or debt consolidator may be able to help you.
- It’s far better to be fully informed, understand your options, and act promptly, than to just hope that it will all go away on its own.