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If you have worked in the debt collection industry for any period of time you would have spoken with people who believe that bankruptcy is the only way out of a financial mess.
While this may be the case for some people, at times they may not be fully educated about the consequences of taking this path with an emotional decision being made rather than a rational decision. We are not implying that it is your role to talk someone out of bankruptcy, however, always ask the person whether or not they understand the consequences of their decision. So what are these consequences?
Bankruptcy Can Impact Income and Employment
A person earning over the indexed amounts may be required to make compulsory payments to the Trustee. The base income threshold amount for a person with no dependents is currently $57,866.90 with the index rising to $78,698.98 for person supporting over 4 dependents. Compulsory payments are calculated by the Trustee and can be paid to creditors to reduce their liability.
While bankruptcy does not stop someone from being employed there are professions that impose restrictions and licence conditions on bankrupts. Some professions do not allow the management of Trust Accounts such as those held by accountants or Solicitors by a bankrupt nor can a bankrupt be a Director of a company, manage a company or hold certain public positions.
Not All Debts Are Released
Most unsecured debt are covered once a person files for bankruptcy however not all. Some exceptions include Child Support, HECS and HELP debts, penalties imposed by Courts and fines. Debts owing to Centrelink, the ATO, Victims of Crime and some toll fines may not be covered and enquiries should be made by the bankrupt to see if the bankruptcy covers them.
A Life on the National Personal Insolvency Index (NPII)
As a bankruptcy a record is maintained on the NPII for life. This is a searchable public register that records insolvency proceedings in Australia.
Obtaining Future Credit
Some creditors ask if a person has ever been bankrupt. This must be disclosed at the time of the application. Credit Reporting Bodies also keep a record of personal insolency for 5 years from the date of bankruptcy or 2 years from when the bankruptcy is discharged by law (whichever is later).
The indexed amounts pertaining to credit limits allow a bankrupt to apply for credit, such as goods or services on credit, hire purchase, leases, etc up to $5,778. Amounts over and above this the bankrupt must disclose they are bankrupt to the organisation providing them with credit.
Restricted Overseas Travel
Planning an overseas holiday? As a bankrupt permission must be sought from the Trustee to travel overseas. It is an offence to travel overseas without obtaining written consent from the Trustee.
Assets Can Be Sold
The Trustee in Bankruptcy may elect to sell assets, including real property, in which to satisfy creditors. Any assets must be declared to the Trustee and these assets must not be disposed of by the bankrupt.
Discharge of Bankruptcy
Bankruptcy usually last for 3 years and 1 day from the date the person files for bankruptcy or, where a creditor commences the bankruptcy proceedings, 3 years and 1 day from the date the Statement of Affairs is filed. In some cases a Trustee may apply to the Court to extend the automatic date of discharge for up to a period of 8 years.
This is not an exhaustive list of the restrictions that a Trustee may impose on a bankrupt. This list has been provided in good faith so that you may better educate people you come across in your day-to-day role about the possible consequences of their decision.
If you have any questions we urge you to speak with a qualified legal practitioner, Trustee or Collection Law Partners.
Disclaimer: This article is general information only and does not constitute legal advice and is not intended to be relied on in any way.