Bankruptcy comes with a set of rules that can change your life in big ways. If you’re thinking about Bankruptcy, it’s important to know how these rules might affect your home, job, and credit. This guide will help you learn about the main rules and how they could apply to you.
Regulations Over Your Assets
When you file for Bankruptcy, there are limits on how much your stuff can be worth. This is because you’re telling your creditors you don’t have enough money or property to pay back what you owe. Anything you own that’s worth more than the allowed amount will be sold, and the money will go to your creditors. Property, like a house or any equity in it, might also need to be sold to pay off your debts. Your Trustee will look at what you own to decide how it can help pay off what you owe.
Most normal household items, like TVs, furniture, and appliances, are safe from being sold. But luxury items, like antiques or expensive jewelry, might be taken to help repay creditors. You can also keep a car or motorbike and tools for your job, as long as their value stays under the limits set by the government’s Indexed Amounts. If you owe taxes and are supposed to get a refund while you’re in Bankruptcy, that refund might be used to pay off your tax debts.
Regulations on Your Income and Employment
There aren’t any limits on how much money you can make while in Bankruptcy. But if your income goes over a certain amount, you’ll need to pay some of it to your creditors. The government’s Indexed Amounts show these income limits, and they’re higher if you have dependents. Each year, your income is checked, and if you make more than the limit, you’ll pay 50 cents for every dollar you make over the limit to your creditors.
If you’re in Bankruptcy, you can’t be a director or run a company, which might affect your business. Some jobs, like those in real estate or financial services, might also stop you from working while you’re Bankrupt. Check with your industry’s professional group to see how this could affect your career.
Debts Included in Your Bankruptcy
Most debts that aren’t secured by collateral can be included in your Bankruptcy. But there are some debts you still have to pay. Debts you can include are:
- Credit card debts
- Unsecured personal loans
- Disconnected utility bills
- Payday loans
- Personal tax and GST debts
- Repossessed car loans
- Centrelink debts
When you go Bankrupt, you have to list all your debts in a Statement of Affairs. This includes debts to family, joint debts, and debts you still need to pay during Bankruptcy. Your Trustee will let you know which debts must still be paid, including:
- Debts from fraud
- Utility bills for services you still use, like electricity or water (if you don’t pay, they could cut you off)
- Court fines or penalties
- Student loans (HELP/HECS/SFSS)
- Child support payments
- New debts you take on after your Bankruptcy starts
Secured debts, like mortgages or car loans, aren’t included in Bankruptcy. If you miss payments on these, creditors can take back the property (e.g., your house or car) to recover the debt.
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Regulations on Your Ability to Travel Overseas
If you want to travel overseas, you’ll need permission from your Trustee first. You’ll have to pay an application fee, and the Trustee can say yes or no to your request. If the Trustee believes you have a good reason to travel, they’ll give you written permission to go.
The Impact Bankruptcy has on Your Credit File
Filing for Bankruptcy leaves a significant mark on your credit. It will make it harder for you to get credit in the future, and your name will be added to the National Personal Insolvency Index (NPII) permanently. Bankruptcy usually lasts for 3 years and 1 day, but it can be extended by your Trustee in some cases.
Bankruptcy stays on your credit report for 2 years after it ends, or 5 years from the day you filed for it, whichever is later. If you need to borrow, lease, or hire goods or services above the limit in the Indexed Amounts, you’ll have to tell the lender that you’re Bankrupt. During this time, getting loans from regular lenders can be tough. Some non-traditional lenders might help, but their terms might not be as good.
Your name will stay on the NPII forever, and anyone can look it up by paying a fee. If you go into a Part IX (9) Debt Agreement, your name is taken off the NPII once the agreement ends or 5 years after it starts, whichever comes later.
Complying with Bankruptcy Regulations
After your Bankruptcy is approved by the official receiver, you’ll be given a Trustee to help you. The Trustee will make sure you follow all the rules during and after Bankruptcy.
The Trustee will check your finances to make sure the details in your Statement of Affairs are correct. They’ll also look into any asset sales you made before Bankruptcy and handle selling any non-exempt assets.
You need to tell your Trustee about changes in your situation and get their approval before travelling overseas. Most of the time, your Trustee will be appointed by AFSA. You can also choose a private Registered Trustee if that fits your needs.
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 Customer Success Specialists about your situation, and we can help you see how Bankruptcy would affect you. At Revive Financial, we have a Registered Trustee who can guide you through the process. There might be other ways to deal with your debt, like a Part IX (9) Debt Agreement or an Informal Agreement.
For more information on Bankruptcy, check out our Bankruptcy page here.
