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Bankruptcy Information

1. Background
   
2. What debts can be "included" in a bankruptcy and what debts are "excluded"?
3. Will a sheriff or anybody else, come around and take my assets, car and other belongings when I go bankrupt?
4. What happens to secured debts e.g. MY CAR LOAN?
5. What happens to my Credit Rating?
6. How much am I able to earn during the three years I am an undischarged bankrupt?
7. What happens if I forget to include a debt in my bankruptcy?
8. Are there any monies that my creditors cannot touch?
9. If one of my debts is with the ATO, what will happen to any tax refunds I may be entitled in the future?
10. Will bankruptcy affect my Centrelink Benefits?
11. Can I operate a business while I am bankrupt?
12. Can I travel overseas during my three-year bankruptcy period?
13. Who will be my trustee during my bankruptcy?
14. Can I have my bankruptcy cancelled?
15. One of my creditors has a garnishee on my wages, what happens to this once I go bankrupt?
16. What are my main rights and responsibilities once bankrupt?

1. Background

   You do not have to put up with the distress and worry you are currently suffering as a result of your financial situation. The Government has provided a way out and it is intended for people just like you. It is called voluntary bankruptcy.
   
   Voluntary bankruptcy provides a way of being released from most of your debts (for exceptions, see below). This gives you a great opportunity for a "fresh start".
   
   Once your bankruptcy goes through, your debts are erased and creditors cannot take legal action against you to recover monies owing. They must also stop contacting you. If they continue to contact you, report them to your trustee.
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2. What debts can be "included" in a bankruptcy and what debts are "excluded"?

   - Almost all debts are able to be included in a bankruptcy; for example, credit cards, unsecured personal loans, personal tax debts, GST debts, disconnected telephone and mobile phone accounts, old medical bills, electricity accounts from previous addresses, school fees, loans you have gone guarantor on, old rentals on TV's, computers, washing machines, etc., and surrendered or repossessed car loans to name but a few.
   

   Centrelink debts are also covered by bankruptcy and once you have become a discharged bankrupt, Centrelink cannot claw back these monies.

   - Debts that are not able to be included in a bankruptcy include:
   
   1. Child support and maintenance.
   2. Fines and penalties that have been imposed by a Court.
   3. Student loans.
   4. Most Higher Education Contribution Scheme (HECS) debts.
   5. Debts incurred after going bankrupt.
   
   - There are certain debts that whilst they could be included in a bankruptcy, their non-payment would have consequences; i.e. non-payment of current accounts for essential services (electricity, telephone, gas, etc.) may cause that service to be suspended until payment is made. The service provider may also require a substantial security deposit before a new service is provided. In these circumstances it is best not to include these types of debts in your bankruptcy.
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3. Will a sheriff or anybody else, come around and take my assets, car and other belongings when I go bankrupt?

   No, those days are well and truly behind us.
   
   - You are able to KEEP NORMAL HOUSEHOLD ITEMS, including beds, furniture, television, stereo, washing machine, refrigerator, freezer, telephone, video recorder, sporting equipment, piano and other musical instruments, etc, etc, essentially everything you currently own. Items mainly for the use of children or students in the house are also protected under bankruptcy.
   
   - YOUR CAR - You are able to keep a car up to a value of around $6,500.00** - wholesale price. If you own a vehicle that is in joint names, then the car can be valued at up to around $12,300 - wholesale. (This assumes you own your car outright. If you are paying your car off, this does not refer to you. See question 4 below in that case.)
   
   - TOOLS OF TRADE - You are able to keep any tools or property used in the earning of your income up to a value of $3,150.00**. This value is not what you would like to get for them, but rather what you would get at a fire sale for them.
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4. What happens to secured debts e.g. MY CAR LOAN?

   A secured loan is the kind of loan where if you did not continue making your repayments, the loan company would come and repossess your car or whatever else the loan is secured against.
   
   If the loan for your car is secured against that car, you can still keep that car when you go bankrupt, as long as you continue to make the repayments on the loan.
   
   You should talk to us to get a better understanding as to where you stand here.
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5. What happens to my Credit Rating?

   Your bankruptcy will be noted on your Credit Reference Record and remain there for 7 years.
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6. How much am I able to earn during the three years I am an undischarged bankrupt?

   Once your bankruptcy has been processed, you become what is called an undischarged bankrupt. You will be an undischarged bankrupt for three years and then you will be discharged and free to do and earn what you wish. During those three years, you have the following income restrictions placed upon you this is take-home pay, i.e. after tax has been taken out.
   
   

   Number of *Dependants	Net Annual Allowable Income**	Allowable Take-Home Pay Per Week Average
   No Dependants	$40,131.00	$769.64
   One Dependant	$47,354.58	$908.17
   Two Dependants	$50,966.37	$977.44
   Three Dependants	$52,972.92	$1,015.92
   Four Dependants	$53,775.54	$1,031.31
   >Four Dependants	$54,578.16	$1,046.70

   * A Dependant is a person who resides with you and who is wholly or partly dependent on you for economic support - but who earns less than $2,913.00.
   ** These figures are correct at 23/07/2008, but are regularly reviewed and changed by government.
   
   If you take home more than the amounts in the table above, then you will pay 50% of the amount above the cutoff figure, to your creditors.
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7. What happens if I forget to include a debt in my bankruptcy?

   If you forgot about a debt and remember it later, you should contact your trustee as soon as possible so that it may be added to your list of creditors.
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8. Are there any monies that my creditors cannot touch?

   A great question and the answer is YES. The following items are protected from your creditors.
   
   - If you are about to receive or have received a PERSONAL INJURY COMPENSATION PAYOUT, this money is protected from your creditors. In other words, you can keep these monies. Any property or asset/s you buy or have bought with this money is unable to be touched by your creditors as well.
   
   - SUPERANNUATION - All superannuation is protected from your creditors, as well as any payments made to your superannuation fund during the three years of your bankruptcy - up to the reasonable benefits limit. Any property or asset/s you buy or have bought with this money is unable to be touched by your creditors.
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9. If one of my debts is with the ATO, what will happen to any tax refunds I may be entitled in the future?

   If the tax office is one of the people you owe money to in your bankruptcy, any refund you are entitled to during the period of bankruptcy may be retained by the tax office to offset the amount owing.
   
   After discharge, any debt still outstanding to the tax office and which formed part of the bankruptcy, cannot be recovered by the tax office. Tax refunds after discharge may be retained by you.
   
   Tax refunds received by you during the period of bankruptcy will also be treated as income for income assessment purposes.
   
   Regardless of bankruptcy, you are still responsible for lodging your Income Tax Returns.
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10. Will bankruptcy affect my Centrelink Benefits?

    Your Centrelink Benefits are protected if you go bankrupt - even if one of your debts is with Centrelink.
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11. Can I operate a business while I am bankrupt?

    There is no problem in operating a business while you are an undischarged bankrupt but you must trade under your own name and as a sole trader.
    
    As an undischarged bankrupt, you cannot operate a business through a company, with you as a director.
    
    If you operate a business through a partnership arrangement, you will need to discuss this with us.
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12. Can I travel overseas during my three-year bankruptcy period?

    Overseas travel is allowed during this period, whether it is for leisure or for work. However you will require written permission from your trustee.

    What you need to include in your request.

    A written request for consent to leave Australia should be made well in advance of the proposed departure.

    The trustee should be supplied with:-

    • reasons for departing Australia
    • dates of departure and return
    • details of your itinerary and any overseas contact details
    • particulars about who will fund the travel costs
    • any documentary evidence supporting the request e.g. confirmation by an employer of the need to travel, confirmation of payment of costs by a third party
    
    

    The trustees main concern here would be, "where did the money come from?" If you are able to show that the money was gifted to you or you reasonably saved it after going bankrupt, there should be no problem getting permission to travel.

    Once the three-year period is over, you will be able to travel overseas without permission - like everybody else.

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13. Who will be my trustee during my bankruptcy?

    Insolvency and Trustee Service Australia will more than likely be your trustee.

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14. Can I have my bankruptcy cancelled?

    Yes, if you pay out all of your debts, including costs.

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15. One of my creditors has a garnishee on my wages, what happens to this once I go bankrupt?

    Once you go bankrupt, any creditor that has a garnishee on your wages will have to stop this garnishee right away. If they do not stop their garnishee, contact your trustee immediately.

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16. What are my main rights and responsibilities once bankrupt?

    Borrowing Money:
    When you are borrowing money, purchasing goods on credit or incurring credit in any way exceeding $4,623.00** (indexed) it is an offence unless you inform the person you are dealing with that you are an undischarged bankrupt.
    
    Change of Name and Address:
    You are required to notify your trustee of all changes of name and/or address.
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This information is general in nature and obviously does not cover every aspect of the Bankruptcy Act 1966. If there are other matters that require a more specific response in your particular case, you will need to speak to us about them.