Considering Bankruptcy?

Changes to bankruptcy laws to help people in financial difficulty as a direct result of coronavirus apply until September 2020. The changes include increasing the period for temporary debt relief and changes to bankruptcy notices. See the AFSA website for more details.

 

What is bankruptcy?

Bankruptcy is the formal process of being declared unable to pay your debts. When you become bankrupt, you don’t have to pay most of the debts you owe.

Bankruptcy is complex and can have serious and far-reaching consequences, so it’s important that you have personal, tailored advice before you make any decisions.

If you’re considering bankruptcy, call our financial counselling team or the National Debt Helpline on 1800 007 007 for a discussion about your personal situation.

Financial counsellors can explain all of the options you may have such as:

  • Asking for more time to pay
  • Negotiating a flexible payment arrangement
  • Offering a smaller payment to settle the debt.

Financial counsellors can also help you understand the impacts of bankruptcy and debt agreements.

The consequences of bankruptcy

While it may have a positive impact on your life and provide you with a fresh start financially, it can also have significant negative consequences.

Once you become bankrupt:

  • You stay bankrupt for three years
  • Your bankruptcy stays on your credit report for five years
  • Your name will be listed on a permanent public record, the National Personal Insolvency Index
  • A trustee will be appointed to look after your affairs
  • You must ask your trustee for permission to travel overseas
  • You can’t be a director of a company without court permission
  • You may not be able to work in certain trades or professions (see AFSA’s employment restrictions)
  • You could lose your home and other assets.

 

Debt agreements

A debt agreement (also known as a Part IX debt agreement) is a formal agreement between you and your creditors to accept an amount of money that you can afford. Once you’ve paid the agreed amount, you’ve cleared those debts.

A debt agreement is an act of bankruptcy, however unlike going bankrupt you may keep your assets, such as a home you are paying off. It does have many other consequences that are very similar to bankruptcy (like the debt agreement being listed on the National Personal Insolvency Index [NPII] and your credit report). It is important to contact a financial counselling service before you decide to enter a debt agreement, as you will incur an Act of Bankruptcy even if it the debt agreement proposal is not accepted.

Applying for a debt agreement

If you meet AFSA’s eligibility criteria, the usual steps are:

  1. You appoint a Debt Agreement Administrator. IMPORTANT – make sure:
  1. The administrator will assist you to prepare a debt agreement proposal, based on what you can afford to pay back. Your creditors will vote to accept or reject this proposal.
  2. If the majority accept it, the debt agreement proposal becomes a debt agreement. All creditors will receive the same proportion of what you owe. The administrator will will take your repayments and distribute them to your creditors.

If the majority of your creditors do not accept the proposal, there is no debt agreement. However, if your debt is over $5,000, your creditors could apply to force you into bankruptcy.