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Debtors
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| Becoming bankrupt is a serious step with long term consequences. People in financial difficulties should be sure they are aware of all options before deciding on any particular course of action. The option of bankruptcy should be considered as your last resort. |
If you are experiencing financial difficulties, consider the following informal options first:
Informal options |
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| Understand and control your circumstances |
Many people can bring their financial situation under control themselves. Before taking any other action, you should:
You should talk to your creditors privately to try and arrange a negotiated settlement. Some creditors have hardship assistance provisions and, at their discretion, they may:
- give you more time to pay
- change the amount or timing of your repayments
- vary the terms of your credit contract, or
- accept a lesser amount of debt or payments.
You may seek advice and assistance by locating and talking to a financial counsellor, accountant, debt agreement administrator or registered trustee. Financial counsellors and other advisors may be able to:
- speak to your creditors on your behalf
- advise you of your rights under the Consumer Credit code
- settle disputes
- help with budgeting
- suggest options other than the formal options outlined below
ITSA strongly recommends to seek financial assistance before considering any formal options under the Bankruptcy Act.
(Note: Some financial services may charge a fee.)
After exhausting the informal options above and still having ongoing unmanageable debt, there are three formal options available to you under the Bankruptcy Act 1966. These are:
A binding agreement between a debtor and their creditors where the creditors agree to accept a sum of money which the debtor can afford.
| Personal Insolvency Agreement (PIA) |
A flexible way for a debtor to come to an agreement with their creditors to settle debts without becoming bankrupt. A debtor must be insolvent to propose a PIA.
If you cannot pay your debts or come to a satisfactory agreement with your creditors, you may become bankrupt and receive the protection of the Bankruptcy Act.
You can also submit a Declaration of intention to present a debtor's petition. You can show this declaration to prevent unsecured creditors from garnisheeing your wages and/or the bailiff or sheriff seizing your assets to recover debts for a period of seven days. However, you should be aware that providing this declaration can be used as supporting evidence if a creditor wants to make you bankrupt and you can only submit one of these declarations every twelve months.
You should read the Personal Insolvency Information booklet to get a better understanding of the immediate consequences of each of the formal options. However entering into a debt agreement or becoming bankrupt has many other consequences, some of which you may not have considered:
| Consequences of a debt agreement |
Finances
- All unsecured creditors are bound by the terms of the debt agreement once they accept it
- Unsecured creditors can not take steps to recover outstanding debts, except as provided in the debt agreement
- Secured creditors rights are not affected and they may repossess if you default on your normal payments
- You are only released from your debts after completing all payments and obligations under the agreement. If you fail to make a payment or otherwise fail to complete the agreement, your creditors can continue pursuing recovery of your debts
Personal Impact
- You may have to pay a bond or repay outstanding account balances to get water, electricity, telephone and other utilities connected
- You may find it hard to get or renew insurance
- If you fail to complete your debt agreement, creditors may use this failure as evidence in a Creditor’s Petition to force you to become bankrupt
Public Records
- Your name will be on the public record (NPII) forever once you submit a debt agreement proposal
- Your name will be recorded by credit reporting businesses, which may limit your ability to borrow money or purchase things on credit
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| Consequences of a personal insolvency agreement |
Finances
- All creditors are bound by the terms of the personal insolvency agreement once they accept it
- Unsecured creditors can not take steps to recover outstanding debts, except as provided in the personal insolvency agreement
- Secured creditors rights are not affected and they may repossess if you default on your normal payments (subject to any provision of the agreement)
- Personal insolvency agreements are very flexible. For example, you can:
- exclude certain property from repossession
- exclude part of your income when making contributions
- specify different rates of return for creditors
- specify the order in which creditors are to be repaid
(Note that creditors are likely to reject any proposal if they could get a better return by forcing you to become bankrupt.)
- Lenders may limit your ability to borrow money or purchase things on credit
Employment & Business
- Your job opportunities may be affected, especially with jobs handling money or where a license is required
- You may not be a director of a company or be otherwise involved in its management without the permission of a court
Personal Impact
- You may have to pay a bond or repay outstanding account balances to get water, electricity, telephone and other utilities connected
- You may find it hard to get or renew insurance
- If you fail to complete your personal insolvency agreement, creditors may use this failure as evidence in a Creditor’s Petition to force you to become bankrupt
Public Records
- Your name will be on the public record (NPII) forever once you submit a personal insolvency agreement proposal
- Your name will be recorded by credit reporting businesses, which may limit your ability to borrow money or purchase things on credit
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| Consequences of bankruptcy |
Finances
- You will be bankrupt for a minimum of 3 years, and in certain circumstances your bankruptcy may be extended
- Most of your assets will vest to your trustee to be sold to pay your creditors
- You may only keep limited items
- While you are bankrupt, you will be required to contribute income to your bankrupt estate once you earn over a specified amount
- While you are bankrupt, assets you acquire may become assets of your trustee to pay your creditors
- Lenders may limit your ability to borrow money or purchase things on credit
- Some banks may not let you operate an account or will restrict how you can use your account
Employment & Business
- Your job opportunities may be affected, especially with jobs handling money or where a license is required
- You may not be a director of a company or be otherwise involved in its management without the permission of a court
- If you are in business and trade under a business name, you must tell everyone you deal with that you are an undischarged bankrupt
- If you are registered for GST and wish to continue in your trade or profession during your bankruptcy, you should advise the ATO so that your pre-bankruptcy GST liability (if any) can be separately identified
Personal Impact
- You must advise your trustee of any change of address
- You must not travel overseas without written permission of your trustee
- You may be asked to hand your passport to your trustee
- You may have to pay a bond or repay outstanding account balances to get water, electricity, telephone and other utilities connected
- You may find it hard to get or renew insurance
- While you are bankrupt, you will lose your right to take and/or to continue most legal actions
- While you are bankrupt, you may not hold certain public positions without the permission of a court
Public Records
- Your name will be on the public record (NPII) forever
- Your documents lodged with ITSA allow the public to search some of your information
- Your name will be recorded by credit reporting businesses for 7 years, which may limit your ability to borrow money or purchase things on credit
If you become bankrupt, never lie or omit details about your financial situation. Consequences of doing so are serious, potentially leading to an extension of the bankruptcy, a criminal conviction and/or jail time. |
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