Family Finance

Debt relief and bankruptcy

debt

Bankruptcy helps people in situations where creditors and debt collectors reject realistic repayment proposals, for example, in consideration of psychological or emotional issues.

There are serious consequences to voluntary bankruptcy, however. More information should be sought from a financial counsellor, lawyer or from the Australian Financial Security Authority (AFSA).

Bankruptcy involves surrendering control of financial affairs to a trustee, usually for three years and one day. This period can be extended, especially if the person fails to cooperate with the trustee in not disclosing information or not meeting their agreements.

The trustee is charged with martialling assets and income to repay debts, but some assets and income are protected and therefore most debt remaining after the bankruptcy period ends will be cancelled.

TWO WAYS TO ENTER BANKRUPTCY

"Creditor's petition": a creditor can apply for this court judgement to force you to become bankrupt if your debt exceeds $500.

"Debtor's petition": an individual voluntarily files a 'debtor's petition' with the AFSA.

IS ALL DEBT CANCELLED?

No, even after bankruptcy ends, some debts like court fines, child support and maintenance payments, some Commonwealth Government debts such as student and HECS loans, debts incurred after the bankruptcy period begins, and debt due to fraud.

Other issues:

  • Creditors cannot chase a debt after bankruptcy has been declared, although some exceptions apply for secured debts.
  • AFSA specifies an income threshold where contributions towards debts are required
  • Jointly-owned property is not protected in bankruptcy, and transferred property may also be unprotected.
  • Bankruptcy is recorded on an individual's credit file for seven years.
  • Overseas travel is more difficult.

Consider all your options before entering bankruptcy, act sooner rather than later, and certainly consult the opinion of a free financial counselling service.

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