Bankruptcy is the legal process that relieves you from your debts. To be eligible to apply for voluntary bankruptcy there are two requirements that you must meet:
- You have debts that you are unable to pay;
- You are in Australia, or if you are not living in Australia you must have a business or residence connection here.
However, there are effects of bankruptcy that you will need to properly consider prior to making this decision.
Is there a minimum amount of debt?
There is no minimum debt level. All it has to be is that you have debts that you cannot pay for at the present time and in the near future.
How do you apply for voluntary bankruptcy?
To apply for voluntary bankruptcy, you will need to fill out two forms and return them within 28 days. These are:
- Form 6 – Debtor’s Petition. This is the application you fill out to request to become bankrupt. You need to provide proof that you are in Australia or have a business or residential connection here. You will also need to prove your identity.
- Form 3 – Statement of Affairs. This form provides proof of your financial position and details all your liabilities and the name of your creditors.
What happens after I am declared bankrupt?
After returning both the Debtor’s Petition and Statement of Affairs, a trustee will be appointed to you. This trustee will contact your creditors and inform them that you have become bankrupt.
The trustee is able to sell your assets to help pay off the debts to your creditors. However, they won’t sell anything that you need to live. For example, your only car or your fridge.
The trustee can also request that you make some kind of repayments to help pay your debt which are depend on your income level and ability to pay.
Consequences of bankruptcy
While there are benefits of bankruptcy, there are number of serious consequences that can come about by applying for it, which are:
1. While bankruptcy releases you from most debts, there are some debts that you may not be able to be released from.
2. Before travelling overseas, you will need permission from your trustee. Please note that it is illegal to travel overseas without express permission in writing from your trustee.
3. Your name will be displayed permanently on the National Personal Insolvency Index. This is a public register and can be searched by anyone.
4. It may affect your ability to obtain credit again. If you are requesting to borrow over $5,681, you must inform the credit agency of your bankruptcy.
5. Credit Reporting Agencies keep a record of your bankruptcy for 5 years from the date you became bankrupt or 2 years from when your bankruptcy ends – whichever is the later.
6. It may affect your employment opportunities.