The Bankruptcy Act 1966 enables proceedings to be taken, either by the debtor or by a creditor, when a person is unable to pay his or her debts, so that most of the debtor’s property can be taken and used to pay the creditors in proportion to the amounts owed to each of them.
There are two ways to be made bankrupt: a Debtor’s Petition (you petition for your own bankruptcy), or a Sequestration Order (the creditor petitions for your bankruptcy).
Bankruptcy – a summary
- A Bankruptcy Trustee is appointed to administer the bankrupt estate.
- The Trustee’s role is to realise assets for the benefit of creditors. Assets include: real estate, motor vehicles and tools of trade (subject to thresholds), shares and cash at bank. Some assets such as general household contents and superannuation funds are excluded.
- The Trustee is required to undertake an investigation into the bankrupt’s affairs for the five years prior to bankruptcy. The bankrupt must make a full disclosure on their Statement of Affairs of any assets sold or transferred in the five years prior to bankruptcy.
- The duration of bankruptcy is three years. However, it can be extended to five or eight years if a bankrupt commits an offence.
- A bankrupt may be required to make contributions from their income if their income exceeds certain thresholds.
- For the duration of their bankruptcy a bankrupt cannot act as a director of a company, and may be prevented from continuing in certain occupations.
- A bankrupt must surrender their passport to the trustee if requested to and obtain their trustee’s permission to travel overseas or to make preparations to travel overseas.
- At the end of the bankruptcy period a bankrupt is discharged from bankruptcy. Most unsecured debts existing at the commencement of bankruptcy are written off. Certain debts are not provable in bankruptcy and are not written off, for instance HELP/HECS debt, maintenance/child support debts, and fines.
- Secured creditors may take enforcement action and if necessary recover their property if a bankrupt fails to maintain payments to them in accordance with their finance agreements.