Bankruptcy is double-edged sword. On the one hand, becoming insolvent means you no longer have to scramble to cover financial obligations, but with that promise of debt relief come a glut of new restrictions that can severely impact your life and livelihood in multiple ways:

  • You may have to pay a portion of future income to a court-appointed trustee
  • You may require special permission to travel overseas
  • Your name will be registered on a national register of insolvent individuals
  • Your trustee will take position of your house and other assets, and may well sell them off.
  • You may lose the right to take legal action
  • You might be unable to obtain credit in the future.

Despite these unpleasant realities, three times as many Australians[i] enter into voluntary and involuntary bankruptcies today, as did 20 years ago. Over the course of 2016 alone, more than 16,000 individuals[ii] and over 8000[iii] companies across the country entered into insolvency.

Corporations Vs People

Currently Australia’s bankruptcy laws are divided into two distinct pieces of legislation.

Corporations Act

First, there’s the Corporations Act[iv] which provides guidance and solutions for large companies that are unable to resolve their debt. Usually insolvency for these organizations involves a process of ranking creditors according to their loan provisions, and then all assets owned by the company are divvied up amongst these creditors with reference to that ranking. Be warned, if you’re a lowly unsecured creditor to one of these companies then you might well walk away with nothing at all.

Bankruptcy Act

The Bankruptcy Act[v] applies to individuals and unincorporated companies, most small businesses fall under this legislation.  If you think you’ll be unable to pay off your debts, the first step is to talk to a qualified financial advisor. First they’ll try and arrange a longer payment period with your creditor. If this doesn’t work out then they’ll talk you through one of four options:

  • Declaration of Intention – Allows you to freeze your debts for 21 days to figure out a way to pay your debts
  • Debt agreement – The majority of your creditors agree to payment via a reduced lump sum, pre-agreed instalments or a delayed payment. To pursue this option your income, assets and debt will need to be under a certain limit.
  • Personal Insolvency Agreement – Pay off your debts in the most practical way possible for yourself. No limits apply for this form of debt relief but you may ultimately end up paying more in the long run.

Bankruptcy

Bankruptcy can be either declared or involuntary. Of the two options the former is by far the more preferable. The criteria for falling into involuntary bankruptcy are surprisingly low.

If any individual or company owes a creditor $5000 or more dollars[vi], and you indicate that you’re unable to pay this debt. The creditor can approach the Australian Financial Security Authority (AFSA), and they will in turn issue you a bankruptcy notice requiring you to make good on the debt within 21 days.

Within this time period you can try to dispute the notice and have it cancelled through the issuing court, but if this request is denied you will be made insolvent.

In this situation a trustee will be appointed to take control of your finances and try to pay off your debts, the cost of this can be astronomical. One well known incident involving an involuntary bankruptcy involved a pensioner who bankrupted by an overdue $1000 internet bill, owed by her son. The trustee who was appointed to deal with this case rung up a staggering $20,000 in fees handling the payment, to repay the amount he tried to sell off the woman’s home![vii]

Can it be stopped? What are your options?

At Blackbox Finance we work with specialists that can help you negotiate your debt and we take care of finding you a lender who could help you get out of trouble before the authority’s step in. Take control before it’s too later and call Ben Fragar and the team at Blackbox Finance about your options. We have helped a lot of people keep their homes and businesses. Life sometimes snowballs and Blackbox is here to help you top it before it’s too late.

If you have already lodged your Bankruptcy, the good news is that the period of insolvency in Australia is only 3 years, after which all debts are forgiven. Of course, there are flow on effects for lending finance for the rest of your life. Most lenders will lend you funds as long as you have a minimum of 20% deposit. If you need advice or options contact us on  1300 70 12 17 or click on the Contact us page on our website, let’s get you back on track.

 

[i] http://www.smh.com.au/money/on-the-money/consider-all-options-before-declaring-bankruptcy-20100801-111ud.html
[ii] https://www.afsa.gov.au/statistics/annual-statistics
[iii] http://download.asic.gov.au/media/4592531/asic-insolvency-statistics-series-1-published-january-2018.pdf 
[iv] https://www.legislation.gov.au/Details/C2017C00312
[v] https://www.legislation.gov.au/Series/C1966A00033
[vi] https://www.afsa.gov.au/insolvency/i-am-owed-money/making-someone-bankrupt
[vii] http://www.smh.com.au/money/on-the-money/consider-all-options-before-declaring-bankruptcy-20100801-111ud.html

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