By Sveta Shao & Esma Refik
“Bankruptcy” is probably a word which would scare most of people off. The purpose of this article is to highlight few advantages and disadvantages associated with being Bankrupt, so that people can have a more informed view on how Bankruptcy will affect them.
The Bankruptcy Act empowers a Trustee to take possession of a number of different types of a Bankrupt’s assets, including real estate and personal property situated in Australia or elsewhere, with some exceptions, in order to sell same for the benefit of creditors.
Once a person is Bankrupt, he/she will usually remain Bankrupt for a period of three (3) years. However a Bankrupt may alter this period by annulling their Bankruptcy within the three year period. The annulment options are outside of the scope of this article.
For some people, Bankruptcy may be the best way to handle their debts. The following is a brief list of the advantages and disadvantages of becoming Bankrupt.
Advantages of Bankruptcy
• All the personal debts (except any court fines or maintenance order) incurred prior to the Bankruptcy will become claims against the Estate. Creditor cannot pressure a Bankrupt for payment following their Bankruptcies;
• A Bankrupt is entitled to protection for certain assets pursuant to the Bankruptcy Act (“the Act”). Theses assets include superannuation, necessary household, property used for earning income by personal excretion, primary means of transport, policies of insurance and similar interests, and disaster relief and personal injury, etc; some of these asset classes are subject to certain ,limited. In the absence of Bankruptcy, a sheriff may be able to sell these assets. Therefore Bankruptcy can offer a form of protection for these assets;
• Creditors may not able to take any legal actions to recover their debts unless grand a leave from the Court or consent from the Trustee.
Disadvantages of Bankruptcy
• The divisible property of the Bankrupt vests in the Trustee, for which he/she can sell for the benefit of the creditors. Such assets includes, but not limited to, residential and investment properties, shares, term deposits and bank accounts, motor vehicles, personal valuables, and an inheritance from a deceased estate etc;
• The previous conduct of a Bankrupt may be at a question and be subject to a detailed investigation by the Trustee in order that he/she can seek to recover antecedent transactions;
• A Bankrupt may be summonsed to attend a public examination regarding their affairs before the Court;
• A Bankrupt may subject to income contribution (if his/her income exceed $39,457.60 after tax. This amount is increased by the number of dependents the Bankrupt have and is subject to change every six months accordingly to the government legislations), income excess of this threshold will be paid to the benefit of the creditors by the Trustee;
• Any divisible assets which vest with the Bankrupt post the date of the Bankruptcy, such as an in heritance from a deceased estate, may be realised by the Trustee for the benefit of creditors (refer to the above for examples of divisible assets);
• Bankruptcy may affect the credit rating of a person; and
• Information concerning the Bankruptcy is public record.
Therefore, if you or your clients are struggling financially and not sure of what to do, please contact this office, as in same instances, Bankruptcy may offer some advantages of which you are not aware of. We are sure that our extensive knowledge and expertise in personal insolvency and turnaround management will be helpful and Bankruptcy might not be your only option!