Bankruptcy comes with a set of rules that can affect your life in significant ways. If you're considering bankruptcy, it's important to understand how these regulations may impact your home, job, and credit. This guide will help you explore the key regulations and how they might apply to your situation.
Regulations Over Your Assets
When you declare bankruptcy, restrictions are placed on the value of assets you may own. This is because you have declared to your creditors that you don’t have enough wealth, either in cash or assets to repay what you owe. So anything worth more than a set threshold will be sold, with the money being distributed to your creditors.
Most everyday household items, such as TVs, furniture, and appliances, are protected. You can also keep a car or motorbike up to $9,400 in value (wholesale) and work-related tools up to $4,350. However, valuable assets like antiques or expensive jewellery may be taken. If you owe tax debts and are eligible for a tax refund during bankruptcy, that refund could be used to offset what you owe to the Commonwealth.
Regulations on Your Income and Employment
There are no income restrictions while you are bankrupt. However, if you start to earn over a set threshold, you will be required to pay a contribution to your creditors. The income thresholds are outlined in the government's Indexed Amounts and they increase depending on how many dependants you have. The contributions are reviewed each year, and if you earn over the threshold, you need to pay 50c for each dollar over the threshold to your creditors.
If you're bankrupt, you can’t act as a director or run a company, which could affect your business. Certain licensed industries, like real estate or financial services, may also restrict you from working while bankrupt. It’s best to consult your industry union to understand the specific impact on your career.
Debts Included in Your Bankruptcy
Most unsecured debts can be included in your bankruptcy, but there are some debts that you must continue to pay outside of your bankruptcy. Debts which can be included are:
- Credit card debts
- Unsecured personal loans
- Disconnected utility bills
- Payday loans
- Personal tax and GST debts
- Repossessed car loans
- Centrelink debts
When you declare bankruptcy you must list all your debts in your Statement of Affairs; this includes debts you owe to family members, joint debts, and debts you will still need to pay during bankruptcy. Your Trustee will inform you of any debts that must still be paid, including:
- Debts incurred by fraud
- Utilities you are still using, such as electricity and water (failing to make repayments will result in disconnection)
- Court imposed penalties and fines
- Student assistance/supplement loans (HELP/HECS/SFSS)
- Child support payments
- New debts you incur after your bankruptcy commences
Secured debts, like mortgages and car loans, aren’t included in bankruptcy. If you fail to keep up with payments on these debts, creditors can repossess the collateral (e.g., your house or car) to recover what’s owed.
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Regulations on Your Ability to Travel Overseas
Before you can travel overseas, you must apply for permission from your Trustee. You must pay an application fee to your Trustee, who may accept or reject your request. If your Trustee believes you have a legitimate purpose to travel overseas they will give you written permission which allows you to travel.
The Impact Bankruptcy has on Your Credit File
Declaring bankruptcy has a lasting impact on your credit file. It will affect your ability to get credit in the future, and your name will be permanently listed on the National Personal Insolvency Index. A term of bankruptcy will generally last for 3 years and 1 day, but this may be extended by your Trustee in certain circumstances. During this time, it will be noted on your credit file that you are a bankrupt and you may find it very difficult to borrow any money. If you need to borrow, lease, or hire goods and services more than $7,032, you must disclose that you are bankrupt.
It will remain on your credit report 2 years from when your bankruptcy ends, or 5 years from the date you became bankrupt, whichever is later. You might still find it difficult to apply for traditional loans in this time. There are specialists non-conforming lenders and brokers who might be able to assist you during this time. Your name will stay on the National Personal Insolvency Index permanently, and anyone can access this public record for a fee. If you were to enter a Part IX (9) Debt Agreement, your name is removed from the index once the agreement is over or 5 years from the date it was made, whichever is later.
Complying with Bankruptcy Regulations
Once your bankruptcy application has been accepted by the official receiver you will be assigned a Bankruptcy Trustee. This Trustee will work with you throughout the period of bankruptcy and beyond to ensure you comply with the regulations and restrictions of bankruptcy.
The Trustee will go through your finances to ensure the information you provided in your Statement of Declaration is accurate. They will also investigate asset sales prior to bankruptcy and handle the sale of any assets outside bankruptcy exemptions. You must report any changes in your circumstances and seek approval before travelling overseas. In most cases, your Trustee will be appointed by AFSA.
The Next Step
If you think bankruptcy is the best course of action for you to get out of debt, call Revive Financial on 1800 534 534. You can speak to one of our professional Case Managers about your specific situation and we can help you determine how bankruptcy will impact you. We offer a number of options for people wanting to declare bankruptcy allowing you to do it yourself with our professional guidance or we can take the reins and do it all for you. There may be other options available to help you get out of debt. These include a Part IX (9) Debt Agreement or an Informal Agreement.
For more information on bankruptcy, check out our bankruptcy page here.
