What Happens When You Declare Bankruptcy?
A brief summary of the bankruptcy process.
It seems that your business may not be going too well. You may already have been declared bankrupt, you make be toying with the idea or perhaps one of your debtors has begun to take action against you. Investigating what the next steps might look like is a commendable place to be. There is no point blinding yourself to circumstances; you may as well be proactive and stay in relative control to avoid unwelcome surprises.
What is bankruptcy?
Bankruptcy is the process where control of your assets and finances are handed over to a trustee if you cannot pay your debt. You may either voluntarily declare bankruptcy or be involuntarily made bankrupt through a creditor’s action. Once you are declared bankrupt, whether voluntarily or involuntarily, you cannot go back.
What happens next?
1. You lose control of your assets
The property that is vested in the trustee who will administer the bankruptcy includes:
- property owned by the bankrupt,
- excluding most household assets, superannuation payment after the date of bankruptcy
- including house, cash, tools of trade above a certain value, business premises and leases.
You can find the full list here.
- property that the bankrupt may have discharged but the trustee is entitled to recover, and
- income above a certain limit, depending on the amount of dependants you have.
You may also be subject to employment restrictions and your overseas travel may be limited.
2. The trustee distributes your assets
The property is then automatically vested in the trustee. The creditors who have lodged proof of debt and have a claim are entitled to receive their due. If there are not enough funds, those available are distributed in proportion with each creditor’s debt.
Your assets may also be used to pay for miscellaneous claims like the cost of the administration of the bankruptcy, employees and workers’ compensation claims.
3. You are a free (wo)man
Three years and one day after you have filed bankruptcy voluntarily or after you have accepted your completed statement of affairs your bankruptcy comes to an end… and it couldn’t come any sooner! Beware that if you do not comply with bankruptcy requirements, the trustee may apply objections to your discharge to extend it.
You may also have your bankruptcy annulled if you pay your debts, come to an agreement with your creditors or the court authorises your annuellement.
In both cases, your bankruptcy will be recorded on the National Personal Insolvency Index, a public record of people declared bankrupt. Your bankruptcy will also be available to a credit reporting agency for the next 2 years or 5 years from the date you became bankrupt.
After all that, you may like to move to the countryside, away from the stress of the city and start a hobby farm.
Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-price quote from our network of 600+ expert lawyers or to get answers to your legal questions.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.