If you’re in debt and have considered filing for bankruptcy, you need to think it through. The decision comes with serious consequences and it can only be tackled effectively if you take the right steps. This succinct guide will offer you important points you need to know before taking bankruptcy into the equation. Make sure to go through these steps and then make a sensible choice.

What does bankruptcy entail?
The situation is like this: You are unable to pay your debts and you are unable reach an agreement with your creditor(s). This is where bankruptcy can be an option. The decision involves lodging a debtor’s petition to become bankrupt.

Sometimes the creditor may choose to do the same to you. Once you have decided to file for bankruptcy, you will be required to discuss it thoroughly with your advisor. The consequences of filing for bankruptcy can be serious; so it is important that you weigh up your options with other solutions such as refinancing, a debt agreement or consolidating your debt.

Bankruptcy typically lasts for a period of three years but can be extended in certain circumstances (such as fraud or withholding full details of your assets). You will have a permanent record of your bankruptcy in the NPII (National Personal Insolvency Index).

Do I owe an amount before I choose to file for bankruptcy?
A creditor cannot render you bankrupt unless the situation entails that you owe a debt of more than $2000. The contacted agency in Australia will manage and administer your estate in the case no trustee provides a permission to act.

So what happens now?
When you are officially declared bankrupt, your creditors will stop contacting you. In order for that to happen, you must mention the list of creditors in the Statement of Affairs clearly.

The detailed part of this statement includes money that you owe to your friends and family including joint debts and other kinds of debts. The majority of the legal actions taken against you will cease. In case your creditors are still contacting you, you need to inform your trustee. They will reach your creditor.

Are there are any debts that I have to pay post-bankruptcy?
Yes. These debts include penalties and fines issued and imposed by the court. They also include the debts accumulated after un-liquidated damages due to accidents, but this may exclude car accidents. Debts such as HECS and PELS are not included in your bankruptcy and will still have to be repaid. You will still need to keep paying for your utility bills and other minor debts.

What about my assets?
Your property may be sold by your trustee, depending on its type. Essentially, an asset is defined as anything of value for the client.
There is a list of asset exemptions. These include:

• Many ordinary household or personal items.
• Tools used to earn an income, (up to a limit)
• Vehicles (cars or motorbikes), where the total value of the vehicles minus the sum owing under finance is less than a set limit*.
• Most monies held in registered superannuation funds and payments from regulated superannuation funds received after you have become bankrupt
• Life assurance policies in respect of yourself or your spouse or proceeds from such policies received after your bankruptcy.
• Compensation for a personal injury, For example an injury to you from a car accident or from a workers compensation claim.
• Assets to the extent that they were bought with your personal compensation money or certain government grants (protected monies).
• An asset held by you in trust for another person (For instance a child’s bank account).
• Awards of a sporting, cultural, military or academic nature made to you, such as medals or trophies and claimed as having sentimental value may be exempted by a vote of creditors.

What can I keep after bankruptcy?
After becoming officially bankrupt, you still can keep most of your ordinary personal items or household appliances, including tools of trade that allow you to maintain a livelihood, centrelink payments remain secure, your motor vehicle to a specific limit and range, and life insurance policies. But before you go bankrupt, you need to investigate and ascertain what your useful assets are and what aren’t.

What about my property? Will it be sold once I go bankrupt?
Some of your assets can be recovered by your trustee. They include houses, apartments, condos, cars, tax refunds before you went bankrupt, proceedings from deceased estate, etc. Your trustee will also deal with the interest in any property of your creditors. You need to remember that your car can be used for transport purposes. However certain conditions apply.

What if I forget to mention a debt during bankruptcy?
Make sure you announce it as soon as possible. Failure or negligence in providing details about every debt results in the extension of your bankruptcy proceedings by up to five years.

If you would like to find out more about how to to avoid bankruptcy and take back control of your debts or to just find out more about bankruptcy then call us on 1300 308 497 for an obligation free consultation or fill out the short contact form.