What are the consequences of bankruptcy?

Declaring bankruptcy can be seen as a way out when you're drowning in debt.

What actually happens when you declare bankruptcy? What are the consequences and how long do these last?

Some of the major consequences of bankruptcy include: making compulsory payments to your trustee if you earn over a certain amount, a permanent record on the National Personal Insolvency Index and your trustee being allowed to sell your assets e.g. real estate, a car and even lottery winnings.

What does it mean to declare bankruptcy?

This is a process where you are legally declared unable to repay your debts.

If you enter bankruptcy yourself voluntarily, it is referred to as a debtor's petition but you will have to be insolvent (unable to pay your debts when they are due). You can also be made bankrupt by one of your creditors through a court process which is called a creditor's petition.

How do you declare bankruptcy?

To be eligible for bankruptcy you need to:

• Be insolvent. That is, be unable to pay your debts when they are due.
• Be present in Australia or have a residential or business connection to Australia.

You don't need to have a certain amount of debt to be eligible for bankruptcy. Once you've done your due diligence to decide if bankruptcy is right for you (i.e. you have explored all other options), you need to head to the Australian Financial Security Authority's (AFSA) website and download an application form. If your application is accepted, the AFSA will send your creditors confirmation.

Finder survey: How familiar are Australians with the consequences of bankruptcy?

Almost a third of people we surveyed did not know anything about the consequences of bankruptcy.

What are the consequences of being bankrupt?

There are several consequences of becoming bankrupt which you need to seriously consider before you apply to be bankrupted.

What debts will be cleared from declaring bankruptcy?

After declaring bankruptcy most of your debts will be cleared so you won't have to pay them after your bankruptcy ends. Although there are a few debts that are not included in this. The tables below show what debts are (and aren't) included in your bankruptcy so you can make an informed choice about whether it's right for you.

Unsecured loan debt

Debt	Will my debt be cleared by bankruptcy?	Conditions
Credit card		-
Store card		-
Unsecured personal loan		-
Unsecured business loan		-
Trade creditor		-
Payday loan		-
Pawn shop loan		You won't get your pawned item/s back.
Overdrawn account		-

Secured loan debt

Debt	Will my debt be cleared by bankruptcy?	Conditions
House mortgage		Your house is likely to be sold though.
Motor vehicle security		You will have to surrender your vehicle if the account falls into arrears or if the vehicle equity is worth more than the indexed amount.
Secured business loans		You need to repay the debt or the secured asset may be sold.
Chattel mortgage		You need to repay the debt or the secured asset may be sold.

Household debt

Debt	Will my debt be cleared by bankruptcy?	Conditions
Gas, electricity, phone, Internet, pay TV		The supplier may choose to no longer supply you or may require a bond.
Outstanding rent where you live		Check local laws to see your tenancy rights – your landlord may be able to terminate your tenancy agreement.
Outstanding rent at a place where you used to live		-
Debts from a property you damaged as a tenant		-

What are the alternatives to bankruptcy?

If you're considering bankruptcy due to unmanageable debt, make sure you've considered your alternatives before you apply:

• Negotiate directly with your creditors. Contacting your creditors and negotiating yourself can be an effective way of getting a handle on your debt. Some things you can negotiate include more time to pay, a flexible payment arrangement or even a smaller, lump sum payment to settle your debt. Explain your position to your creditors and they may be more willing to negotiate with you.
• Part 9 Debt Agreement. While this is a type of bankruptcy, entering into a Part 9 Debt Agreement is not the full act of declaring bankruptcy. Find out about the differences here.
• Personal Insolvency Agreement (PIA). Also known as a Part 10, this agreement is between you and your creditors and involves a trustee being appointed to take control of your property and making an offer to your creditors. The offer may be to pay part or all of your debts by instalments or in a lump sum.

Want to speak to someone about your debt?

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