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What Happens When You Claim Bankruptcy In Australia

Who Is My Bankruptcy Trustee

Declaring Bankruptcy in Australia: What you need to know

The AFSA will appoint a Trustee to manage your bankruptcy. If you have voluntarily elected bankruptcy, you can apply to have your own registered Trustee appointed and will need to submit a Trustee Consent to Act Declaration along with your bankruptcy application.

The AFSA may also appoint a registered Trustee following request from your creditors. Your creditors also have the power to remove and replace your Trustee.

Case Study: Back On Track After Bankruptcy

This is based on a true story.

She spent years juggling bills and loans and credit cards, as well as dealing with angry creditors and tense family relationships. With MyBudgets help, Maryanne looked at her situation from every possible angle, got expert advice on what is involved in declaring bankruptcy, and decided that bankruptcy was the right option for her.

MyBudget administered Maryannes bankruptcy petition and helped to put a budget in place that made sure Maryanne could live comfortably on her wage and pay her parents back over time. Maryanne said that it provided nearly instant relief having a caring support team to handle her creditors and pay her bills for her. By the time Maryannes bankruptcy was discharged, her debt to her parents was paid off, she had savings in the bank and was excited about her future.

If youve ever thought How does the bankruptcy process work? we hope this answered some of your questions

After reading all of this you might be wondering why youd declare bankruptcy at all? Now you know what is involved in declaring bankruptcy and the consequences of bankruptcy in Australia, you might be more keen to avoid ending up in a situation where you have no option but to declare bankruptcy. If youre concerned about your financial situation, or want to avoid bankruptcy, were happy to help.

Ready to find out more? Call 1300 300 922 to book your free budget consultation or enquire online.

Can A Bankruptcy Trustee Take My Home

Itâs not common, but itâs possible in certain circumstances.

The bankruptcy trusteeâs job is to sell non-exempt property for the benefit of unsecured creditors. That includes personal property and real property. Whether your home is safe from the trustee depends on whether it has any ânonexempt equityâ which in turn depends on its market value.

As a reminder, hereâs how we calculate equity in this scenario:

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What Happens When You File

Is going bankrupt going to help you? There are various benefits to doing so but there are drawbacks as well. If you declare bankruptcy you will be released from your current debts and your creditors will not be able to pursue for these debts. There are exceptions to that rule, such as fines and penalties required by the court to be paid. Additionally you cannot stop paying on child maintenance and maintenance orders in general.

In addition to this your secured debts are treated differently. For example if you own a home with a mortgage and you fail to make you mortgage payments and they fall into arrears then the bank could repossess your home. You still must make and maintain payments on all your secured loans throughout your bankruptcy. If there are any guarantors or joint borrowers on any of your debts then the co-borrower and/or the guarantor remains liable for the repayment of the debt, in full. If that person or those people also file for bankrupt, then they will not be responsible for repaying the debt.

You need to think through these issues before you file for bankruptcy.

What Happens To My Money

Bankruptcy in Australia  What Debts are removed by ...

More information you should know about different types of payments and if your trustee can claim them in bankruptcy.

How payments from the Coronavirus Economic Response Package affect;people in bankruptcy

Economic support payments;– are not claimable;by your bankruptcy trustee as income or as an asset, regardless of whether you receive the payments before or after the date of bankruptcy.

COVID-19;supplementpayments;– are claimable by the trustee if you receive them before the date of bankruptcy and it remains in your bank account when you become bankrupt. During bankruptcy these payments areincluded in your after-tax income amount. If your after-tax income exceeds a set amount, you may have to make compulsory payments

More information about these types of payment are available at Services Australia.

Early access to superannuation;-; Should you receive payments from your superannuation under the Coronavirus Economic Response Package, there is no change;to the way this payment;is;treated in bankruptcy. See Is my superannuation affected?;for details on what happens to your super during bankruptcy.

The Australian Taxation Office has more information about super payments;on their website at;Early access to your super.

Read Also: How Soon After Bankruptcy Can You Buy A Car

I Am Considering Bankruptcy Do I Need A Lawyer

It is paramount that you obtain advice from a suitably qualified professional before taking any steps to enter voluntary bankruptcy or if you are served with a Bankruptcy Notice, Creditors Petition or any other form of legal documents. Bankruptcy lawyers will be able to meet with you and provide you with advice and options relevant to your particular circumstances. They are the only professional in the insolvency process that is acting solely for you aside from your accountant. The bankruptcy trustee is independent and does not act for you.

In a large number of cases bankruptcy is an option of last resort. We find that creditors are often prepared to be commercial and negotiate where it is evident that their prospects of recovery are limited or hindered. A lawyer that is experienced in insolvency will be able to assist, advise and negotiate with creditors or the bankruptcy trustee.

TheAustralian Small Business and Family Enterprise Ombudsman has issued a warning to businesses and individuals to be careful in dealing with inexperienced advisors in relation to bankruptcy.

It is a complex area of law, proper advice and representation are critical. So it is important that you understand the what happens if you declare bankruptcy from credible advisors.

What Are The Alternative Solutions To Bankruptcy

While many people believe that bankruptcy is the only solution when you are drowning in debt, that is not the case. Bankruptcy is, in truth, your last resort. There are many alternative debt relief solutions available to you that may mean you can avoid declaring bankruptcy.

At Debt Negotiators, we work closely with you to find the best debt solution for you.

Even if you are falling badly behind on your repayments, we are often able to negotiate a debt solution that can help you get back in control of your finances such as:

  • Help you secure a Debt Consolidation Loan that allows you to make one affordable monthly repayment.

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How Filing Bankruptcy Can Make Paying Your Mortgage Easier

Your bankruptcy discharge wipes out most of your unsecured debts. Medical bills, credit card payments, loan payments, etc. all of the bills that are making it hard for you to make ends meet now are eliminated by a bankruptcy filing.

With debt repayment obligations gone, you can focus on the expenses that really matter: mortgage payments, utilities and regular living expenses.

Thatâs actually true if youâre renting, too. Rent will always need to be paid, just like a mortgage, electricity, water and other utilities. But as soon as the automatic stay kicks in, you’ll be protected from debt collectors.

I Cant Pay My Debts What Are My Other Options

Bankruptcy: What does it mean?

Debt Consolidation

Debt consolidation is where you refinance your debt into a loan with a lower credit rating. There can be a variety of options and your lenders may become more negotiable and helpful if you are working proactively to work through and pay your debts.

Debt Negotiation

Debt negotiation can assist in lowering the amount of debt you have to repay and the extending the timeframe you have to pay it in. A bankruptcy lawyer will be able to negotiate these debts on your behalf and give you more time and more flexible payment arrangements than you can negotiate for yourself. Our lawyers have helped many people with ATO negotiations as well as other debtors.

Debt Agreements

This is a good step prior to bankruptcy where creditors may be happy to take a lesser amount rather than nothing. These agreements can be helpful and be negotiated between the parties privately.

Also Check: How To File Bankruptcy In Texas Without An Attorney

Whats The Difference Between Bankruptcy And A Formal Debt Agreement

This is very important when trying to understand how does the bankruptcy process work?. Personal insolvency agreements and formal debt agreements, also known as Part IX debt agreements so-called because they are Part IX of the Bankruptcy Act are an alternative to bankruptcy. Like bankruptcies, formal debt agreements are administered by AFSA.

Whereas bankruptcy releases you from your debts, a Part IX debt agreement is an opportunity to negotiate a reduced sum payable to your creditors in instalments over a set amount of time. Should your creditors accept your proposal, your debts will no longer attract interest and your payments will be consolidated into a single, easier to manage repayment for a fixed period of time, usually up to five years.

It is important to recognise that entering into a debt agreement is considered an act of bankruptcy and that the consequences are not dissimilar. Applicants also face the possibility of being forced into bankruptcy by their creditors against their will.

Keep Track Of Your Credit During The Process

Because declaring bankruptcy can affect your credit history and ability to do certain things in the future, it’s important to monitor your credit scores during the process and as you work on recovering from the ordeal.

As you do so, watch how certain actions affect your credit scores and look out for potential errors and negative information that might influence your score negatively. If you do find something that doesn’t belong on your credit report, dispute it with the credit reporting agencies.

As you keep track of your credit score during and after bankruptcy, you’ll learn better how to improve it over time and keep it in a good place going forward.

Want to instantly increase your credit score? Experian Boost helps by giving you credit for the utility and mobile phone bills you’re already paying. Until now, those payments did not positively impact your score.

This service is completely free and can boost your credit scores fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.

Read Also: How To Find Out If A Company Filed Bankruptcy

Meet Our Bankruptcy Professionals

At Australian Debt Solvers, we are in the business of helping people who are in financial distress. We do what we do to help people through the situation they are in, to a better outcome whether they are a Director of a multi-million dollar company or struggling to make ends meet with their personal finances.

Capital Gains Tax On Asset Disposals

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As noted above, a bankruptcy trustee is very likely to look to dispose of some of your property to clear your debts. Many of these disposals will give rise to Capital Gains Tax liabilities.

Under the tax laws, the vesting of your assets in a bankruptcy trustee is ignored. This means that where a disposal is made by the trustee, the tax law still deems the disposal to have been made by you. So, if a capital gain or loss arises, you will be liable and will need to record the disposal in your tax return.

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What If Im Behind On My Mortgage

If youâre behind on your mortgage payment and â¡ï¸

  • you donât want to keep the house: Chapter 7 provides a mechanism to surrender the house to the bank and discharge your obligation to pay the loan. This will protect you if your mortgage loan is a ârecourseâ loan where the bank could otherwise try to collect a deficiency judgment after the foreclosure.

  • you do want to keep the house: Chapter 7 is not ideal. It doesnât provide a mechanism to catch up on your mortgage payments. This means youâre still at the mercy of the bank and their willingness to modify your home loan to deal with your arrearage. If you can afford to make your full mortgage payments now, Chapter 13 bankruptcy may offer a solution.

What Is A Debt Agreement

A debt agreement1 is a formal agreement you may be able to enter into with your creditors. To enter into a debt agreement you will need to meet the eligibility requirements and appoint a debt agreement administrator. More information on the process can be found here.

In a debt agreement, your creditors agree to accept a lower amount over a set period of time. While these agreements can be helpful, you must consider the consequences:

  • The fact that you entered into a debt agreement will be registered on your credit report for at least five years.
  • You must tell all new credit providers that you have entered into a debt agreement if you are seeking credit above an amount agreed with your current creditors.
  • Your name will be listed on the National Personal Insolvency Index for at least five years.
  • Also Check: What Is Better Bankruptcy Or Debt Consolidation

    What Sorts Of Debts Can Be Included In Bankruptcy

    Most debts are included in bankruptcy. These include unsecured debts, such as utility bills, outstanding rent, medical and legal bills, credit cards, store charge cards, personal lines of credit, unsecured personal loans and payday loans.

    Some debts are not included: outstanding child support payments, government education debts and debts incurred by fraud or your wrongdoing. In addition, there is a grey area relating to outstanding debts with Centrelink, the Australian Tax Office and some tolls or fines.

    In the case of secured loans such as loans for real estate property, vehicles or hire purchases the lender has a right to repossess the asset to recover monies owed to them. If there is a shortfall between the value of the monies recovered and the outstanding loan balance, the shortfall may be included in the bankruptcy.

    When it comes to joint debts, a person petitioning for bankruptcy may include their share, in which case the joint lender will become solely responsible for the debt. Likewise, guarantors assume responsibility for any debts included in a bankruptcy.

    Is Bankruptcy The Right Solution For Me

    Bankruptcy What Happens in a Chapter 7

    Whether declaring bankruptcy is right for you is entirely dependent on your circumstances. Bankruptcy should only ever be your last option once all other debt relief solutions have been explored.

    Get in touch with us today for a free debt assessment to review your options and identify the best debt relief solution for you.

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    Is My Superannuation Affected

    It depends on when and how you receive super. You must inform your trustee if you receive any super before and/or after your bankruptcy begins.

    Super payments you receive before bankruptcy:

    • are claimable by your trustee
    • your trustee can claim assets you purchase with those funds, e.g. a house.

    Super payments you receive during or after bankruptcy:

    • are not claimable by your trustee if it is a lump sum payment
    • your trustee cannot claim assets you purchase with those funds, e.g. car.

    An exception is where your super isnt in a regulated fund, approved deposit fund or an exempt public sector scheme. Your trustee can claim super not held in these types of funds. Refer to your super fund provider if you are unsure which type of fund your super is in.Super you receive as income:During bankruptcy, super you receive as an income stream forms part of your assessable income. If your income is over a set amount, you may need to make compulsory payments.Self-managed super fundsSomeone who is bankrupt cant be a trustee of a self managed super fund.; If you have a self managed fund you must advise your trustee. You must cease acting in this position and notify the ATO within 28 days. See the ATO website for more information about removing yourself as a trustee.

    What Are The Consequences Of Bankruptcy

    The appointment of a Trustee to manage your bankruptcy

    A Trustee will be appointed to manage your bankruptcy. The role of the Trustee will be to undertake investigations into your personal and financial affairs. The Trustee will make requests that you supply them with bank statements, records and any other documents relevant to your estate.

    Impact on your business

    A bankrupt is disqualified from being a director of a company. If you own and operate a business as a sole director and secretary without the appropriate measures in place bankruptcy will inevitably be a problematic.

    Impact on income and employment

    Certain licencing and accreditation bodies require an individual to be solvent. In the worst case scenario bankruptcy may actually preclude you from earning an income in your profession of choice. In many professions this is a show cause event where you may be able to apply for special consideration.

    In addition to the above, you may be required to pay your Trustee an income contribution if you are earning an amount which is higher than the Base Income Threshold Amount

    Restrictions on international travel

    As part of becoming a bankrupt you are required to surrender your passport to your Trustee. For any travel overseas you must obtain the Trustees consent and provide the Trustee with any information which may reasonably be required by the Trustee to consider a travel request. It is an offence to travel overseas without your Trustees written consent.

    Also Check: How Does Filing Chapter 13 Bankruptcy Work

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