What is Bankruptcy?
Bankruptcy may occur when a person is “insolvent” (see below) and either declares bankruptcy, or a creditor or creditors bankrupts the insolvent person by way of a Court action. Bankruptcy is a public and legal financial condition where a Trustee in Bankruptcy is appointed under law (see Bankruptcy Act, 1966) to administer the bankrupt’s affairs, in order to provide for a fair distribution of the bankrupt person’s assets to their creditors. In Australia, the term “bankrupt” applies to people, as distinct from businesses or other entities.
What is “Insolvent”?
In the case of an individual, the term “insolvent” refers to that person not being able to meet his or her financial obligations (pay his or her debts) when they fall due. The term applies whether or not assets (including for example real estate property, vehicles or artworks) are held, when there is no ability to quickly “liquidate” those assets — that is, to sell them or convert them to cash. Remember however, that TAP’s role is to help you rationalise your situation and deal with creditors.
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What are the consequences of Bankruptcy?
Although bankruptcy is a legitimate way for a debtor to solve his or her debt problems, and is the correct way for creditors to take action against someone for unpaid debts, you should note that the consequences of bankruptcy are both long-term and serious. From the time of being declared bankrupt until you are discharged by your appointed Trustee, you would be referred to as an “undischarged bankrupt”. As such, you cannot act as a company officer, or trade under a name other than your own name (ie, a business name), without advising your customers or potential customers that you are bankrupt. You will be required to make all your divisible assets available to your Trustee. You cannot obtain credit over an indexed amount of money without advising the lender that you are bankrupt; you may be required to surrender your passport and will have limitations placed on overseas travel; and you must make available all your accounts, bank records and financial statements, including those of associated entities such as companies and trusts. In addition, a permanent record of your bankruptcy will be kept on the National Personal Insolvency Index (the NPII), an electronic register of all personal insolvencies. Personal information including your name, address and date of birth may be revealed by a search report of the Index.
Are there alternatives to Bankruptcy?
Yes, there are alternatives to bankruptcy, which Turnaround Professionals can help you to arrange and negotiate. For example, you might enter into a Personal Insolvency Agreement, where you make an acceptable arrangement with your creditors, without being declared bankrupt.
For more information, refer to Section — Alternatives to Bankruptcy