Bankruptcy

You can deal with unmanageable debt in other ways, if your financial situation allows it. Before you make a decision, you should review your options, such as a:

• declaration of intention
• debt agreement
• personal insolvency agreement

Declaration of intention

If you meet certain conditions, you can lodge a declaration of intention (DOI). This protects you for 21 days from unsecured creditors. During this time they can’t take further action to recover their debts. This also gives you time to consider what to do to manage your debt, if you want to avoid bankruptcy.

Debt agreement

A debt agreement details how you will settle your debts. You can:

• pay a lump sum that may be less than the amount you owe
• repay your debt in instalments

A debt agreement can be a flexible way to come to an arrangement to settle debts without becoming bankrupt.

To make a debt agreement, the majority of your creditors (by value) will need to accept it. You must also meet certain conditions to be eligible, including having your income, assets and debt under a certain limit.

Personal insolvency agreement

A personal insolvency agreement (PIA) lets you pay off your debt in a way that suits your financial situation. It's like a debt agreement, but your debt, income and assets don't have be under a certain limit.

There's a chance that you'll end up paying more by signing a PIA than by declaring bankruptcy. Make sure you understand the consequences of each before deciding.

There is no minimum or maximum amount of debt or income to be eligible to apply for bankruptcy. To declare yourself bankrupt, you need to meet the following 2 requirements:

• you're unable to pay your debts when they’re due
• you're in Australia or have a residential or business connection to Australia

When you declare bankruptcy AFSA appoint an Official Trustee to administer your bankruptcy. If you’re applying for voluntary bankruptcy, you may nominate a registered trustee. Once a trustee has been appointed you’re then protected from any legal action against you from creditors.

At this stage the trustee may sell your assets and take any income you earn over a certain amount to try to pay off all your debts.

You also have a duty to provide information to your trustee such as:

• changes to your conditions
• your business books
• bank statements
• other requested documents

Payment of debts after bankruptcy declaration

When you enter bankruptcy, your declaration may clear most unsecured debts, such as credit cards, personal loans, unpaid rent and overdrawn bank accounts. This means that you no longer have to repay them.

However, bankruptcy doesn’t cover debts such as child support, HECS/HELP and toll fines. This means you’re still liable for these debts. You should contact your creditors directly to discuss payment options.

Although bankruptcy can provide relief if you’re unable to repay your debts, you need to be aware of some serious consequences.

These consequences may help you decide if it is the right decision to declare bankruptcy. Bankruptcy can affect your:

• income, employment and business
• ability to obtain future credit
• ability to travel overseas
• assets, as they may be sold

Bankruptcy may also restrict future ambitions. While bankrupt, you will be unable to:

• hold the position of a director of a company
• hold certain public positions
• start or continue in some trades or professions

If you apply for voluntary bankruptcy – you’re typically released (‘discharged’) from bankruptcy after 3 years and 1 day from when the AFSA accepts your bankruptcy application.

If a creditor makes you bankrupt – your discharge from bankruptcy typically ends after 3 years and 1 day from when the AFSA accepts your statement of affairs.

However, credit reporting agencies keep a record of your bankruptcy for:

• 5 years from the date you become bankrupt
• 2 years from when your bankruptcy ends

Your name will also permanently appear on the National Personal Insolvency Index (NPII).