Ruqayyah Snyder
If you are struggling with debt, bankruptcy is one option to manage it. The Bankruptcy Act 1966 provides three other options to tackle debt: Declaration of Intention, Debt Agreement, and Personal Insolvency Agreement. Bankruptcy is a serious decision with significant consequences and should be considered carefully. If you are sure that bankruptcy is the best option, you can apply for it online by creating an Online Services account and completing the Bankruptcy Form. This process may take around 30 to 60 minutes. Alternatively, you can submit the form offline via post. Before applying, it is important to understand the process, eligibility, and implications of bankruptcy. You can seek advice from financial counsellors or legal services to make an informed decision.
| Characteristics | Values |
|---|---|
| Application Fee | No fee to apply for bankruptcy |
| Application Process | Complete a Bankruptcy Form online or offline |
| Time Taken | 30-60 minutes to complete the form |
| Eligibility | Individuals or partnerships can declare bankruptcy |
| Other Options | Declaration of intention, debt agreement, personal insolvency agreement |
| Consequences | Serious and cannot be cancelled |
| Duration | Bankruptcy ends 3 years and 1 day from acceptance of Statement of Affairs |
| Credit Report | Bankruptcy appears on the report for a minimum of 5 years |
| Trustee | Official Trustee or registered trustee appointed to manage assets and debts |
| Debt Inclusion | All debts must be included |
| Trustee's Role | Notify creditors, sell certain assets, collect compulsory payments |
| Child Support, Centrelink, Higher Education Debts, and Court Fines | Must continue to be paid |
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What You'll Learn
Eligibility and understanding the process
To be eligible for bankruptcy, you must be in a situation where your creditors have tried to recover debts totalling at least $10,000 unsuccessfully. If you are in a debt agreement, you must terminate it before applying for bankruptcy.
Before applying, it is important to understand what declaring bankruptcy means for you now and in the future. Bankruptcy is a serious decision that cannot be cancelled if you change your mind. It will appear on your credit report for a minimum of five years, and on a public record known as the National Personal Insolvency Index. You will need to continue to pay your child support, Centrelink and Higher Education debts, and any court fines. There may be restrictions on holding some statutory positions during this period, so it is important to check with your professional body.
If you are unsure about declaring bankruptcy, you can call a financial counsellor for advice. The Australian Financial Security Authority (AFSA) also has resources to help you understand the effects of bankruptcy, as well as a video called 'Bankruptcy Advice: Untrustworthy Advisors' that explains how easy it is to be tricked by unregulated, unlicensed advisors.
To apply for bankruptcy, you will need to complete an online Bankruptcy Form. This will take around 30 to 60 minutes. If you are unable to complete the form online, you can submit it offline by contacting the AFSA for a copy of the form and returning it by post. If your application is accepted, you will receive a confirmation letter with your AFSA administration number, or bankruptcy number. If it is not accepted, you will be notified in writing.
If you have been made bankrupt by a creditor, you will need to file a Statement of Affairs within 14 days of being advised of your bankruptcy. If you do not do this, you may face penalties and your bankruptcy may be extended. Your bankruptcy will normally end three years and one day from when the Official Receiver accepts your Statement of Affairs.
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Completing the bankruptcy form
To apply for bankruptcy in Australia, you will need to complete a Bankruptcy Form online. This process may take around 30 to 60 minutes.
Firstly, you will need to create an Online Services account. You will be asked to create a Digital Identity or an Australian Financial Security Authority (AFSA) account to prove your identity. Once set up, you can reuse your Digital Identity with other services.
When completing the bankruptcy form, it is important to include all your debts. You must provide details of your debts, income, and assets to your trustee. Your trustee will notify your creditors that you are bankrupt, which prevents most creditors from contacting you about your debt. Your trustee can also sell certain assets to help pay off your debts. You may need to make compulsory payments if your income exceeds a set amount.
If you are currently in a debt agreement, you must terminate it before applying for bankruptcy. The Bankruptcy Act 1966 provides three other options to deal with debt: Declaration of Intention, Debt Agreement, and Personal Insolvency Agreement. If these options are not viable, you can declare bankruptcy.
If you cannot complete the form online or are completing it on someone else's behalf, you can submit the form offline by contacting the AFSA for a copy of the form and returning it by post. If your application is accepted, you will receive a confirmation letter with your AFSA administration number, known as your bankruptcy number.
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Additional requirements and supporting documents
When applying for bankruptcy in Australia, you will need to complete a Bankruptcy Form. This can be done online through an Online Services account, or a paper form can be sent to the Australian Financial Security Authority (AFSA) via email.
- Identity Verification: You will need to prove your identity by providing two forms of identification. This can include an Australian passport or other approved identity documents.
- Financial Information: Supporting documents such as payslips, Centrelink statements, bank statements, and account numbers may be required to provide detailed information about your financial situation.
- Previous Applications: If you have previously applied for bankruptcy, you may need to provide information about that process, including any fees incurred.
- Court Orders: If you have been made bankrupt by a court order (sequestration order), do not use the online form. Instead, contact AFSA to request a copy of the Statement of Affairs form or obtain it from your trustee.
- Affidavit: If you are presenting a creditor's petition, an affidavit must be included with your application. This should be in accordance with the standard Form 59 for affidavits and include the bankruptcy heading in Form B1.
- Debt Information: The amount of outstanding debt must be clearly stated and meet the minimum requirement of $10,000 under the Bankruptcy Regulations 2021.
- Foreign Judgments: In cases involving judgments from outside Australia, the Official Receiver will require evidence of registration of the judgment or an explanation for why it is not necessary. The amount must be converted to Australian currency using the rate of exchange published by the Reserve Bank of Australia.
- Natural Disaster Impact: If your supporting documents have been destroyed due to a natural disaster, you can use the Natural Disaster Replacement Document Request form to obtain replacements at no cost.
- Safety Concerns: You can request to hide your address and other personal information from the National Personal Insolvency Index (NPII) if you have safety concerns. Answer 'Yes' to question 6 of the Bankruptcy Form and provide your reasons.
It is important to carefully review the requirements and instructions provided by AFSA to ensure you have all the necessary supporting documents for your bankruptcy application.
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Debt agreements and other options
Before declaring bankruptcy or considering a debt agreement, it is important to explore your other options and seek professional advice. Bankruptcy is the most extreme measure available under the Bankruptcy Act 1966 (Cth), which provides four 'formal' options for dealing with unmanageable debt.
Debt Agreements
A debt agreement, also known as a Part IX or Part 9 debt agreement, is a formal way of settling most debts without going bankrupt. It is a legally binding agreement between you and your creditors, where they agree to accept an amount of money that you can afford, paid over a set period of time. It is important to note that a debt agreement is for individuals on a lower income who cannot pay what they owe, and it comes with certain consequences. These include being listed on your credit report for five years or more, and having your name on the National Personal Insolvency Index for the same duration.
Other Options
The Bankruptcy Act 1966 (Cth) provides three other options to deal with debt:
- Declaration of Intention – a process that provides 21 days of protection, during which unsecured creditors cannot take action against you.
- Personal Insolvency Agreement – a legally binding agreement between you and your creditors where part or all of your debts are paid off in instalments.
- Temporary Debt Protection – an option that should only be considered as a last resort, as it has serious consequences.
It is always recommended to seek support and advice from a free financial counsellor to help determine the best plan for your circumstances.
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Consequences and what happens next
When an individual is declared bankrupt in Australia, there are a number of immediate consequences and restrictions that come into effect. Firstly, the bankrupt individual's assets will be frozen and their control over these assets will be transferred to a trustee. The role of the trustee is to manage the individual's financial affairs and sell any non-protected assets to repay creditors. Any interest or entitlements the individual has in a property will also vest in the trustee, who may sell the property to repay creditors. It's important to note that some assets are protected and cannot be taken, such as essential household items and tools of trade up to a certain value. Superannuation is generally protected unless the individual has made large contributions in the six months prior to bankruptcy.
The individual will also be required to provide the trustee with details of their income and any changes to their financial circumstances. If their income exceeds a certain threshold, they may be required to contribute a portion of their income towards their debts for the duration of their bankruptcy. This is known as a 'income contributions'. They may also need to pay any tax refunds received during this period to the trustee.
During bankruptcy, the individual will face a number of restrictions. They cannot be a company director, manage a business, or be involved in the management of a company without the permission of the court. Their credit rating will also be affected, and they may find it difficult to obtain credit or loans in the future. They must disclose their bankrupt status when applying for credit over a certain amount. Travelling overseas may also be impacted, as they must seek permission from the trustee and provide details of their travel plans.
Bankruptcy usually lasts for three years and one day from the date of the bankruptcy notice, or the date the individual filed their statement of affairs, whichever is earlier. Once the bankruptcy period ends, most of the individual's debts are released, providing a fresh start. However, there are exceptions to this, such as debts incurred by fraud, court fines, and HECS/HELP debts, which are not automatically released. It's important to note that bankruptcy is a public process, and the individual's name will be listed on the National Personal Insolvency Index (NPII) and published in the government's 'Insolvency Notices' publication.
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Frequently asked questions
To apply for bankruptcy, you will need to complete a Bankruptcy Form online. You can do this by creating an Online Services account with the Australian Financial Security Authority (AFSA). It takes around 30 to 60 minutes to set up an account and complete the form.
You must include all your debts when applying for bankruptcy. You will also need to provide details of your debts, income and assets to your trustee, who will notify your creditors.
Bankruptcy is not the only option to manage your debt. The Bankruptcy Act 1966 provides three other options: Declaration of Intention, Debt Agreement, and Personal Insolvency Agreement.
Bankruptcy will appear on your credit report for a minimum of five years and on a public record known as the National Personal Insolvency Index. You will still need to pay your child support, Centrelink and Higher Education debts, and any court fines. There may be restrictions on holding certain positions during this period.
