Personal Insolvency FAQ

Do you have to be 18 years old to become bankrupt?
Can a minor declare bankruptcy?

Although uncommon, it can and does happen that a minor becomes bankrupt.

The Bankruptcy Act does not specify a minimum age for a person to become bankrupt, enter into a debt agreement or personal insolvency agreement.

However, also relevant is the legal capacity of someone to contract with another person. The law governing legal capacity to contract with another person on the basis of age varies according to the jurisdiction. While both the common law and statute operate to restrict the capacity of minors to contract, there will be circumstances when a contract to repay a debt made by a minor will be binding from the outset.

Between 2008 and 2014, six people who were aged 17 years became bankrupt. No one under the age of 17 has become bankrupt since 2008.

As a creditor, can I choose the debtor’s trustee?

If a Sequestration Order is made, a trustee will be appointed to manage the debtor’s financial affairs. If you want a particular trustee to administer the bankrupt estate, you must file a Form 12 Trustee Consent to Act Declaration with the Official Receiver when you file a copy of the creditor’s petition.

Creditors have the right to change trustees by resolution at a meeting of creditors convened by the current trustee at the request of a creditor.

What is a composition?

A composition or arrangement is an offer made by a bankrupt through their bankruptcy trustee to finalise their debts.

A report is prepared by the trustee and creditors vote on whether or not to accept the offer. If the creditors, by special resolution, accept the proposal, the bankruptcy is annulled.

What are the consequences of bankruptcy?

  • Your name and other details are permanently on the public NPII register.
  • You may find it difficult to obtain further credit.
  • Your name will be on a commercial credit reference database for up to 5 years, or longer.
  • You may not be released from some types of debts.
  • Your employment may be affected.
  • Secured creditors can still repossess an asset if there is a default in payment.
  • You might find it hard to rent and connect utilities without paying a bond.

What will my bankruptcy trustee do?

Your bankruptcy trustee’s principal duties are to:

(a) Sell your assets, including those you acquire or become entitled to during your bankruptcy (there are certain exemptions).
(b) Recover any income you earn over a certain limit.
(c) Investigate your financial affairs and in certain circumstances, recover property that you have transferred to someone else prior to bankruptcy.
(d) If possible, pay a dividend to creditors.

When will I be discharged from bankruptcy?

If you became bankrupt by presenting your own petition, you will be due for discharge three years and one day after you filed that petition and your Statement of Affairs with AFSA.

If you were made bankrupt by a Sequestration Order of the Court, you will be due for discharge three years and one day after AFSA accepted your completed Statement of Affairs. It is therefore important to lodge your Statement of Affairs with AFSA promptly, as any delay can mean you will be bankrupt for longer than three years.

When I am discharged from bankruptcy is there still a record of my bankruptcy?

Your name will appear on the public record (NPII) forever as a discharged bankrupt. Credit reporting organisations also keep records of bankruptcies for seven years.

What is the minimum judgement amount upon which a bankruptcy notice can be based?

$5,000

What kind of creditor am I?

Generally there are two categories of creditor: secured and unsecured. There are also priority (unsecured) creditors (i.e. employees) and occasionally contingent creditors.

What right do I have to pursue a compensation or insurance payment after becoming bankrupt?

Bankruptcy does not alter your right to take legal action to recover and retain damages or compensation for personal injury to yourself, your spouse/partner or a member of your family.

Will my credit report be affected by bankruptcy?

Yes. Commercial credit reporting agencies can keep a record of your bankruptcy on your credit report for 7 years. Credit reports can also include defaults, which are overdue payments of more than 60 days where debt collection activity has begun.

Am I eligible to propose a Personal Insolvency Agreement (PIA)?

To be eligible you must have a residential or business connection to Australia, and you must not have proposed another PIA in the previous six months (unless Court permission is obtained). To propose a PIA you must also be insolvent, that is, unable to pay your debts as and when they fall due.

Do I need to become bankrupt?

There are many causes of unmanageable debt, some of which may be beyond your control. See the government publication “Dealing with debt: Your rights and responsibilities” (www.asic.gov.au).

Someone else also signed the loan agreement. Will they have to pay if I declare myself bankrupt?

Generally, yes. They will still have a liability for the total amount outstanding on all debts incurred in joint names.

Am I an employee?

In an external administration you are likely to be classified as an employee if you are:

  • engaged by the company under an award, Certified Agreement, Australian Workplace Agreement or a contract of employment, and
  • paid a salary, wages or commission.

Contractors are not employees. They are ordinary unsecured creditors.

Is there a minimum amount I need to owe before I can go bankrupt?

No. You can become bankrupt voluntarily owing any amount; however the Official Receiver in Bankruptcy can reject your request to become bankrupt under certain circumstances. A creditor cannot make you bankrupt unless the debt is $5,000 or more.

What about debts I incur just before bankruptcy?

If you are already insolvent, i.e. you cannot pay your debts as and when they fall due, it is advisable not to incur further credit because if you become bankrupt it may be an offence under the Bankruptcy Act, and you may be prosecuted.

How do I bankrupt someone?

If you are owed $5,000 or more and have obtained a judgment or order, you commence bankruptcy proceedings by issuing a Bankruptcy Notice to the debtor. The debtor has 21 days to pay. Non payment of the notice forms the basis of an application to have the debtor declared bankrupt.

How do I become bankrupt?

You can become bankrupt voluntarily or you can be made bankrupt on the actions of a creditor.

If you have considered the alternatives available to you, and have decided voluntary bankruptcy is your best option, you will need to complete a Debtor’s Petition and Statement of Affairs, and sign the acknowledgement that you have read and understood the Prescribed Information. These documents must then be lodged with AFSA.

Can I obtain an early release from bankruptcy?

You can only be released early from your bankruptcy where you enter into a compromise with your creditors within bankruptcy, pay your debts in full to obtain an annulment or the Court makes a determination.

You will be discharged automatically three years and one day from the date you filed your debtor’s petition and statement of affairs with AFSA. You cannot be discharged early from your bankruptcy.

How can I confirm if someone is bankrupt?

The National Personal Insolvency Index (NPII) is a public and permanent register of personal insolvency proceedings in Australia. The NPII provides information regarding the insolvency status of individuals. Anyone can search for a name on the NPII for a fee.

If I am made bankrupt, will I have to appear in Court?

Your trustee will decide whether there are matters requiring examination before the Official Receiver or the Court. If, for example, investigations into your affairs are needed, you may be required to attend an examination or an interview.

How does bankruptcy affect my employment?

Bankruptcy generally does not prevent you from working. Indeed, the Bankruptcy Act encourages financial rehabilitation.

However, if you are engaged in particular trades or professions there may be certain restrictions imposed by professional associations or licensing authorities.

Your employer is not normally notified of your bankruptcy unless you owe him or her money, or unless you have failed to pay compulsory income contributions.

Can my bankruptcy be cancelled or annulled?

If you strive to pay your debts your bankruptcy may be annulled.

Your trustee can issue a certificate of annulment when all your debts and costs of administration of your bankruptcy have been paid in full or you make an offer of composition which is accepted by your creditors.

Alternatively, if you believe that you should never have been declared bankrupt, you can make an application to the Court to have your bankruptcy annulled under Section 153B of the Bankruptcy Act.

Is my bankruptcy advertised?

Generally not, but your trustee may choose to do so.

Can I continue to use my credit cards after bankruptcy?

It is for the issuing bank or finance company to decide whether they are prepared to continue to extend credit to you.

All creditors at the date of bankruptcy should be listed on your Statement of Affairs and they will be notified of your bankruptcy. It is an offence for you to incur credit over a set limit without disclosing to the person you are dealing with that you are an undischarged bankrupt.

What happens if someone has guaranteed some of my debts and I become bankrupt?

Bankruptcy does not affect the rights of a creditor to claim under a guarantee. The creditor is entitled to recover payment from the guarantor. Once payment has been made, the guarantor steps into the shoes of the creditor and is able to lodge a claim in your bankruptcy for the debt paid.

What happens to my debts after bankruptcy?

After bankruptcy you are discharged from all provable debts. Very important exceptions are fines for breaches of the law, debts arising from fraud, maintenance payments, Child Support and accumulated HECS and HELP debts which had been raised before your bankruptcy.

What happens to my assets if I go bankrupt?

Your bankruptcy trustee takes control of those assets you own when you become bankrupt, or any you acquire or receive before the end of your bankruptcy.

The trustee will sell these assets for the benefit of your creditors, having paid his or her own fees and expenses plus the government realisations charge.

There are, however, certain assets which are exempt, which means you may keep them. Exempt or protected assets include most ordinary household or personal items, and up to a limit, tools used to earn an income, vehicles used for transport, and superannuation.

Can a bankrupt travel overseas?

A bankrupt can leave Australia if they obtain their trustee’s written consent before they depart.

The trustee will need to be satisfied that the bankrupt has legitimate reasons for the proposed travel e.g. as a condition of employment or for compassionate reasons.

The trustee may impose written conditions when giving permission e.g. period or duration of travel.

What is the difference between liquidation and bankruptcy?

Companies are liquidated and individuals bankrupted.

Two separate pieces of legislation are involved: liquidations are governed by the Corporations Act and bankruptcies by the Bankruptcy Act. At the finalisation of a liquidation, the company is deregistered, i.e. it ceases to exist, while a bankrupt survives bankruptcy. While a bankrupt loses their assets at the date of bankruptcy, one of the principal aims of the bankruptcy process is to provide a mechanism for the financial rehabilitation of bankrupts.

Who handles a bankruptcy?

The estate of a debtor who is entering into bankruptcy voluntarily will usually be administered by AFSA. However, a registered trustee may administer the estate if they have provided their written consent to the debtor.

If a debtor is made bankrupt by a creditor, the creditor will choose the trustee.

What happens to the debts incurred after the date of bankruptcy?

The debtor remains responsible for any debts incurred on or after the date of bankruptcy.

When will creditors be notified of my bankruptcy?

Your trustee will notify your creditors in writing as soon as possible. Your trustee will provide creditors with details of your assets and liabilities, as disclosed in the non-confidential section of your Statement of Affairs. Where appropriate, your trustee will provide creditors with an update as to the status of your bankruptcy.

Will bankruptcy affect my spouse?

Bankruptcy may affect your spouse. If your spouse is not bankrupt, and is jointly liable for some of your debts, creditors will still be able to pursue your spouse for payment. In addition, your interest in any assets owned jointly with your spouse will vest in your trustee and may need to be sold.

What happens to my family home?

Your share in the family home is an asset in bankruptcy and will vest in your trustee. If it is determined that there is equity in your home (i.e. the value of your home is greater than the amount owed to the secured creditor), your trustee may need to sell it in order to realise the bankrupt estate’s interest.

If your home is jointly owned, your trustee may sell the estate’s interest to the co-owner (e.g. your spouse). However, this may have stamp duty implications.

If there is no equity in your family home and you are unable to meet the mortgage payments, the secured creditor may elect to sell your home or allow your trustee to sell your home. The secured creditor will have a provable debt in your bankruptcy for any shortfall suffered. However, the secured creditor may still be able to pursue a co-owner for payment of the shortfall.

Can a bankrupt continue to run a business?

A bankrupt can continue to operate a business under certain circumstances.

While a bankrupt can continue to operate as a sole-trader, if trading under an alternative name, everyone that the business deals with must be informed that the bankrupt is an undischarged bankrupt.

A bankrupt is automatically disqualified for managing corporations. This means that a bankrupt, for the duration of bankruptcy, cannot be a director or secretary of a company or be involved in the management of a company.

What are the main offences that can be committed under bankruptcy?

The main offences are:

  • Failing to notify your trustee of a change of name, address or telephone number.
  • Travelling overseas without your trustee’s written permission.
  • Not disclosing that you are bankrupt when obtaining credit over a certain limit.
  • Deliberately obtaining credit before bankruptcy when you know that you will be unable to repay the creditor.
  • Failing to disclose assets, or creditors, to your trustee.
  • Disposing of your assets before bankruptcy with an intent to defeat creditors.

Can my bankruptcy be extended?

Your bankruptcy can be extended from three years to five or eight years if you have committed an offence which is considered a “ground for objection” under the Bankruptcy Act.

Some of the grounds for objection are:

  • Failing to provide information pertaining to your property, income or expected income to your trustee.
  • Providing false or misleading information to your trustee.
  • Failing to pay the mandatory income contributions to your estate.
  • Intentionally failing to disclose to your trustee a creditor that existed at the date of bankruptcy.
  • Failing to deliver your passport to your trustee.
  • Travelling overseas without your trustee’s written permission.

What happens to tax refunds that I receive during my bankruptcy?

If the Australian Taxation Office (“ATO”) is a creditor of your estate, your tax refund may be retained by the ATO and applied against your pre-bankruptcy debt.

After you receive your discharge from bankruptcy, the ATO can no longer apply your tax refunds against you pre-bankruptcy debt i.e. the tax refund can be retained by you.

Do I need to lodge tax returns while bankrupt?

Even though you are bankrupt, you are still responsible for lodging income tax returns. However, you may not need to lodge tax returns for any financial year which ended prior to the date of bankruptcy.

Do I need to deliver my passport to my trustee?

It is a requirement under the Bankruptcy Act for your passport to be delivered to your trustee if your trustee requests that you do so.