It goes without saying that if there are difficulties in paying debts due, it creates undue stress which can even affect your ability to earn income.  If you feel that this situation needs to be addressed there are 3 options available under the Bankruptcy Act 1996 (“the Act”).

Voluntary Bankruptcy

This step should usually be taken for people who cannot repay their debts and there are no other means to resolve their financial difficulties by way of a stream of income to enable repayment of the debts.  The process for voluntary bankruptcy is for the person to apply for a debtor’s petition in bankruptcy which entails downloading the form from the Australian Financial Security Authority (AFSA).  You will need to provide details of your income, your assets, your debts, any businesses companies or trusts you are part of, and any court cases that you are involved in.   You can choose a registered trustee to manage your bankruptcy, otherwise AFSA will choose a trustee for you.  If you want to choose your registered trustee, you must ask them to complete a trustee consent to act declaration form to be submitted at the same time as your bankruptcy form. 

If AFSA accepts the application, confirmation will be sent to you and your creditors.  Likewise, if the application is not accepted, you will be notified in writing the reasons why. 

Before considering this option, there are serious consequences arising from being made bankrupt:  in particular in relation to obtaining credit in the future; you will be subject to the trustee and bankruptcies directions and possible requests for information during the bankruptcy.  There is also a requirement to report income during the bankruptcy period. 

The bankruptcy normally lasts for 3 years and 1 day, and after that period one is automatically discharged.  However, the trustee in bankruptcy may request for the time for bankruptcy to be extended in circumstances where the person has failed to comply with the requests of the bankruptcy trustee for information.  At the time of discharge of the bankruptcy the person is released from the debts that occurred prior to the bankruptcy.  Please note that some debts, like child maintenance survives bankruptcy.

There are two other options under the Act, which are strictly speaking, not bankruptcy.

Debt Agreement

A debt agreement works by way of negotiating to pay a percentage of your combined debt that you can afford to pay over a period of time, usually 3 years.  Pursuant to the debt agreement you make the repayments to the debt agreement administrator.  After the payments and agreement ends, creditors cannot recover the rest of the money that is owed.

First you will need to speak to a registered debt agreement administrator.  A list of the registered administrators can be found on the AFSA website.

Please note there are limits to the amount of debts that are owing to entitle someone to enter into a debt agreement.  These limits relate to the amount of the debt, the amount of assets the person owns that can be divided up between creditors and limits on income eligibility.  These can be found on the AFSA website or alternatively discuss this with the debt registered debt agreement administrator.  Alternatively, you can also speak with a financial counsellor about this.

Please note the consequences of a debt agreement can mean that even proposing a debt agreement is an act of bankruptcy (as distinct from being bankrupt) which creditors can use to apply to the court to make someone bankrupt.  The debt agreement administrator will manage the agreement and no obligation to provide information to the administrator, including changes to circumstances.  Fees could also apply to the administrator.  If you trade under a business name that is not your own name, you must tell people you do business with you are in a debt agreement.  The debt agreement will not release anyone from a secured debt i.e. mortgage and the like.  The debt agreement will not release another person who jointly owes the debt with you.  Your name will appear on the National Personal Insolvency index for some time.

Personal Insolvency Agreement

This type of agreement is also known as a “Part X”, is a legally binding agreement between a person and their creditors.  It involves the appointment of a trustee to take control of the persons property and make an offer to the creditors.  Such offer may be to pay part or all of the debts by instalments or by way of a lump sum. 

There are no debt, asset or income limits to be eligible for the personal insolvency agreement.  The length of the PIA will depend on what you negotiate with the trustee and creditors.   Some assets may be able to be retained such as a house or car if the terms of the agreement allow.  There are, however, fees applied to process, propose and manage the agreement.

Again, financial counsellors can assist you in advising on this course.

The PIA lasts up till the trustee has made the final payment under the agreement.

The consequences of PIA are that you are permanently on the National Personal Insolvency index and details appear on your credit file for up to 5 years or longer in some cases.  You are not able to deal with your property without consent of the controlling trustee.  You may however be able to run your business if the terms of the agreement allow.  However, you are not able to manage a corporation until the terms of the agreement have been finalised.  There are obligations to assist the trustee by providing information and documentation. 

How RMO can assist

We can provide the following advice:

• We will advise you on the implications of bankruptcy and whether it is the appropriate choice.
• Assist you with the preparation of your submission for bankruptcy or your other the choices available.
• If you are presented with a bankruptcy notice or your company is presented with a bankruptcy notice, we can provide advice on whether you can establish some cross claim or counter claim which will mean that the bankruptcy notice can be set aside.

Contact Us

If you have questions in relation to unpaid debts, contact us to book an initial consultation with one of our experienced lawyers, and we will provide you with tailored advice with respect to your unique circumstances. call 1800 957 936, email mail@rmolaw.com.au or submit an enquiry on our website.

We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.

This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

Roly O’Regan

Director