What is Bankruptcy, and how will it affect you?
If you are unable to attend to the payments of your debts, Bankruptcy is a legal process commenced by a Creditor, where you are declared to bankrupted and classified to be a person unable to pay his or her debts.
If a Creditor commences proceedings against you by issuing a Bankruptcy Notice against you, then the creditor can proceed with the Bankruptcy proceedings if you are unable to pay the debt within a period of 21 days. An “Act of Bankruptcy” is deemed to have taken place 21 days subsequent to the personal service of the Bankruptcy Notice upon you. If the payment is not forthcoming within 21 days of service of the Bankruptcy Notice against you, a Creditor can issue a Creditor’s Petition with the Federal Circuit Court of Australia, commencing Bankruptcy Proceedings against you within six months of the date of the Bankruptcy Notice having been issued.
If the Creditor’s Petition proceeds to a Hearing, and the Debtor is unable to successfully defend the matter or attend to the repayment of the outstanding debt, the Court proceeds to issue, a “Sequestration Order.”
Sequestration Orders declares the Debtor to be Bankrupt for a period of three years and one day.
A Bankruptcy Trustee is appointed by the Court when a Sequestration Order is entered. A Trustee is a person or a body who manages your Bankruptcy. This can be either an official Trustee from the Australian Financial Security Authority (“AFSA”) or a registered Trustee. Alternatively, the Creditor can nominate a registered Trustee of his or her choice.
You can also enter into voluntary Bankruptcy by lodging a Debtor’s Petition.
The Consequences
Once you are declared a Bankrupt, you must provide details of your debts, income and assets to your Trustee. Your Trustee can sell certain assets belonging to you to help repay all the outstanding debts. Your Trustee will proceed to notify all your creditors that you have been declared Bankrupt, and this will prevent the creditors from contacting you directly. The creditors (both secured and unsecured) will then proceed to liaise with the Trustee.
If you are unable to repay your debts and you are considering Bankrupt, it would be most prudent and advisable that you proceed to liaise with a Financial Advisor or your Solicitor in order to discuss your options of dealing with your unmanageable debt. You have to obtain professional help in relation to your debt decisions, so that you can attempt to renegotiate your repayments, consider your options, and also understand the serious consequences of being declared Bankrupt.
Credit reporting agencies keep a record of your Bankruptcy for a period of five years from the date you became Bankrupt, or two years from when your Bankruptcy ends, whichever is the later date. One of the common questions raised by a debtor is whether he or she can travel overseas once you are declared Bankrupt.
During the Bankruptcy period, you can travel overseas as long as you have obtained permission from your Trustee to leave Australia. You do not, however, need approval from a Trustee to travel within Australia or to Australian Islands and Territories (for example, Norfolk or Christmas Island).
There is a formal process to follow in order to seek the relevant permission. If you do not have a passport, Bankruptcy does not prevent you from applying for a passport. This requirement of seeking permission from the Trustee also applies even if the intended travel purpose is work-related, as well as urgent travel or for compassionate reasons.
If you travel without the relevant permissions, you could face penalties whereby an extension of your Bankruptcy for a further five years from your return date could be made, in certain circumstances, or even a term of imprisonment.
To avoid Bankruptcy and the serious consequences that follow, we strongly recommend that you make contact with us in order to have all your queries answered.
Please do not hesitate to contact Freedman & Gopalan Solicitors if you have any further questions on (02) 8917 8700 or by email to reception@freedmangopalan.com.au