FAQ's: Bankruptcy

The following FAQs concerning bankruptcy will assist you in understanding its consequences and the impact that it will have on you in the future. These questions and the responses are based upon AFS' significant experience in providing solutions to people with debt.

Remember that there are alternatives to bankruptcy. So consider the FAQs then contact us at AFS to receive our free and confidential advice, and discuss the debt solution that best suits you.

Will all of my assets be sold if I become bankrupt?

Your bankruptcy trustee will take possession of all of your divisible assets and sell them for the benefit of your creditors.  Your divisible assets exclude certain exempt assets, but will include assets such as your house, any land, motor vehicles, shares, artworks and other assets.

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What assets are exempt and cannot be sold by my bankruptcy trustee?

Your bankruptcy trustee cannot sell assets that are exempt assets.  This will generally include assets such as your household items, personal items, tools of trade less than a set value threshold, motor vehicle less than a set value threshold, superannuation less than a threshold amount and other certain defined assets.

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Can I keep my motor vehicle (e.g. car or motor bike) when I am bankrupt?

You can retain a motor vehicle with a value (or alternatively a net value after finance) of less than the set threshold amount.  As at January 2008 the set threshold amount was $6,300.  The threshold amount is indexed periodically. 

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If my assets include my tools of trade can I keep those tools?

Tools of trade means assets that you use to earn income by personal exertion.  You can retain tools of trade with a value of less than the set threshold amount.  As at January 2008 the threshold amount was $3,150.  The threshold amount is indexed periodically. 

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Can I keep my house if I am bankrupt?

The equity interest in your house will be held by your bankruptcy trustee and sold for the benefit of your creditors.  If you own your house jointly with another person, for example your spouse, then your trustee will sell your interest or share in the house.  Where you have a mortgage on your property to a bank or other financier they may also sell your property if you do not maintain the required repayments.

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Will I be able to keep all of my income after I become bankrupt?

Your bankruptcy trustee will assess the income that you are likely to receive for each future 12 month period and issue you with a written assessment.  If your income is over a set threshold amount (which varies depending on your number of dependents) then you will be assessed as being required to contribute a portion of your income to your bankruptcy trustee for the benefit of your creditors. The threshold amount is indexed periodically. 

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How are income contributions calculated?

Your bankruptcy trustee will assess the income contributions that you are required to make.  The following example is useful for understanding how they are calculated.

Harry is an undischarged bankrupt.  Harry's expected income (after tax) for the next 12 months is $65,000, and he has two dependents (his two children).  His bankruptcy trustee calculated his monthly income contribution as being $620 per month, as follows:

   $
Harry's income (next 12 months) after tax
  65,000.00
Less  
Allowable base income threshold amount
  (39,457.60)
Additional allowable income threshold for two dependents
  (10,653.55)
Assessable Income
   14,888.85
Portion of assessable income towards contributions
  50%
Harry's income contribution amount
  
  • Annually
 $7,444
  • Monthly
 $620

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What happens if I do not pay my income contributions?

There are penalties for not meeting income contributions that are assessed to you by your bankruptcy trustee.  These penalties can result in your bankruptcy period being extended by 5 years, the amounts being deducted directly from your income before it is paid to you and other penalties.

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Will my employer be contacted if I become bankrupt?

Usually there is no requirement for your employer to be advised of your bankruptcy, unless you have failed to meet income contributions that are due to the bankruptcy trustee.  Bankruptcy should not affect your employment, however if you are self employed your bankruptcy may impact your ability to hold certain licenses that you require to trade.  There are also restrictions on the level of credit that you can incur without disclosing that you are bankrupt.

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Can one of my creditors force me to become bankrupt?

A creditor (or creditors) must be owed at least $2,000 by you in order for them to make an application to the Court to force you into bankruptcy.  There is no minimum amount you must owe if you decide to become bankrupt voluntarily.

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Will my creditors continue to call me and pressure me to make payment after I become bankrupt?

When you become bankrupt your creditors should no longer contact you in respect of the debts that are included in and subject to your bankruptcy.  Your creditors will instead deal directly with your bankruptcy trustee.  There are certain liabilities that are not affected by your bankruptcy and remain payable by you.

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Does my bankruptcy release me from all of my liabilities?

There are certain liabilities that are not affected by your bankruptcy and remain payable by you either during your bankruptcy (e.g. Court penalties and fines, parking and traffic fines, certain damages from accidents, student assistance loans and other defined debts) or after your bankruptcy ends (e.g. child support and other maintenance debts, HECS debts and other defined debts).

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What is the difference between a secured creditor and an unsecured creditor?

A secured creditor is typically a creditor that holds a security over one or more of your assets.  Common examples of types of assets that may be associated with secured creditors include a home that is subject to a mortgage, a motor vehicle that is subject to a loan, household furniture or goods that were acquired using special finance loans.  A secured creditor may seek to sell the asset over which they hold their security in order to recover the amount owing to them.

An unsecured creditor is typically a creditor that holds no security over your assets, or suffers a shortfall after selling the asset held as security, and will be required to deal directly with your bankruptcy trustee to await the determination of any distributions that may be made by your bankruptcy trustee.

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What are the alternatives to bankruptcy?

There are several alternatives to bankruptcy that should be explored.  If you contact us at AFS these can be explained and discussed with you to determine which alternative will provide a debt solution for you.  They include a debt agreement, a Part X agreement, debt consolidation or refinancing and an informal arrangement with creditors.

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Who will be my bankruptcy trustee if I become bankrupt?

A registered private practising trustee or ITSA will act as your bankruptcy trustee if you become bankrupt.  

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How long will I remain bankrupt?

Generally you will remain bankrupt for a period of 3 years.  This period may be extended in certain circumstances where your bankruptcy trustee objects to your release from bankruptcy.

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Can the period of my bankruptcy be extended and, if so, for how long?

The period of your bankruptcy can be extended in certain circumstances upon objection by your trustee, usually where you have failed to meet your obligations as a bankrupt or if you have committed offences.   The period may be extended up to 5 years or even 8 years.

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What would cause my bankruptcy to be extended?

Some examples of reasons why your bankruptcy trustee would lodge an objection and seek to extend your bankruptcy period may include where you have failed to disclose all of your assets and liabilities, or you have failed to meet all of your assessed income contributions, or you have failed to assist or provide information to your trustee, or you have travelled overseas without the trustee's consent, or failed to return from overseas travel as directed by your trustee.

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Can I travel overseas if I become bankrupt?

Your trustee will usually ask that you relinquish your passport to the trustee during the period of your bankruptcy.  You can only travel overseas during your bankruptcy if you have obtained the consent of your trustee and usually then only in special circumstances.  If you have income contributions outstanding to the trustee then you will need to obtain consent from the Court to travel.

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What is the affect on my credit rating if I am bankrupt?

Bankruptcy will damage your credit rating, and there will be a permanent record of your bankruptcy even after you are discharged from bankruptcy.  This is likely to affect your ability to obtain credit and loans in the future.

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Will I need to go to Court as part of my bankruptcy?

After you are made bankrupt there may be occasions where you are required to attend Court in order to assist your trustee with your examinable affairs and give evidence as directed.

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Why does the trustee for my bankruptcy conduct investigations of my past financial affairs?

One of the tasks of the bankruptcy trustee is to review the bankrupt's previous transactions and financial affairs to determine whether there are likely to be any legal recoveries that can be made for the benefit of your creditors.  Examples of such recoveries may include circumstances where the trustee forms the opinion that assets have previously been disposed of at less than market value, or where assets have been shifted in an attempt to defeat creditors, or where a certain creditor has been preferred in repayment compared to other creditors.

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What should I do now?

Taking action is the key to regaining control and releasing the pressure.  Contact us now at AFS and we will help you on the path to financial freedom.

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