Bankruptcy – Debtor’s Petition

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What is a debtor’s petition?

A debtor’s petition is the process of voluntarily seeking to have yourself declared bankrupt.

The process involves the completion of certain forms and filing them with the Australian Financial Security Authority (AFSA). Once the forms are submitted, they are assessed for their completeness.

If the forms are assessed as being complete, you will be declared bankrupt on the day that the assessment is completed.

Who will conduct my bankruptcy?

Once you have been declared bankrupt, a trustee is appointed to administer the bankrupt estate.

You may nominate a trustee to conduct your bankrupt estate by including a completed consent to act as trustee. Only registered trustees in bankruptcy are eligible to provide a consent to act.

If a consent to act as trustee has been filed with AFSA prior to the debtor’s petition being considered, the trustee nominated will (in most cases) become the trustee of the bankrupt estate.

If no consent to act is filed by a registered trustee, the estate will be administered by the Official Trustee in Bankruptcy.

In certain circumstances, the Official Trustee in Bankruptcy may seek to transfer the bankrupt estate out to a registered trustee to take over the administration of the estate.

Why lodge a debtor’s petition?

When a person has a debt level that is no longer manageable, declaring bankruptcy will assist in allowing them to draw a line in the sand, and move on with life, without the constant stress and anguish of unmanageable levels of debt.

Declaring bankruptcy can assist in alleviating the stress and burden associated with debt.

Upon declaring bankruptcy, it is not appropriate for unsecured creditors to continue to contact you seeking payment of any outstanding credit facilities, or to continue to threaten legal action.

It can also prevent further action by a sheriff who has been engaged to seize certain goods and prevent further garnishees on your bank account.

In most cases, the individual will be discharged from bankruptcy after the period of 3 years.

What will happen to my assets?

The Bankruptcy Act provides for a number of asset classes to be exempt from the trustee to realise for the benefit of the estate. These asset classes are referred to as non-divisible property.

The following is a list of some (not all) of the categories of non-divisible property:

  • Necessary household furnishings and clothing.
  • Motor vehicles whose value is below the threshold.
  • Tools of trade whose value is below the threshold.
  • The value of the benefit held in superannuation.
  • Proceeds of compensation for an injury or a wrong done.

The thresholds referred to above have not been listed, as they are adjusted every 6 months.

An interest in real estate is an asset that the trustee in bankruptcy can realise for the benefit of the estate.

If there is a joint owner of the property, in certain circumstances, an arrangement can be made for the joint owner to purchase the bankrupt estate’s interest in the property, without the need to vacate and sell the property.

Bankruptcy does not prevent a creditor who holds a valid security interest from repossessing or recovering assets subject to their security.

Is there a limit to how much I can earn whilst I am bankrupt?

There are no provisions in the Bankruptcy Act which prevent a person from earning above a certain amount.

Where the income of a bankrupt exceeds a certain threshold limit, the bankrupt is required to make a payment to the bankrupt estate from that income. This obligation is referred to as income contributions.

Income contributions are calculated based on the after-tax income of the bankrupt during the calendar year of their bankruptcy, (not a financial year).

The threshold limit to be applied to each estate varies depending on the number of parties who may be dependent upon the bankrupt for financial support. In most cases, this refers to children who reside with the bankrupt.

For every after-tax dollar that exceeds the threshold limit, the bankrupt is required to pay half of this sum to the estate.

A bankrupt’s income will remain liable to be assessed until they are discharged from bankruptcy, which in most cases (in a debtor’s petition) will be 3 years from the date they are declared bankrupt.

When will I be discharged from bankruptcy?

A bankrupt is entitled to be automatically discharged from bankruptcy after 3 years and 1 day of their Statement of Affairs being filed and accepted by the Official Receiver.

Your Statement of Affairs will have been reviewed and accepted by the Official Receiver when filing your debtor’s petition. Therefore, in a debtor’s petition, the automatic discharge date will be 3 years and 1 day after the date of the bankruptcy.

Where a bankrupt has not complied with their obligations under the Bankruptcy Act, an objection may be filed by the trustee to prevent their automatic discharge from bankruptcy. If the objection is upheld, the discharge period may be extended by a further 2 or 5 years. This can result in a person remaining an undischarged bankrupt for a period of up to 5 – 8 years.

Please contact us for further information or an obligation-free consultation regarding how a debtor’s petition may be appropriate to deal with your financial circumstances.

Having Insolvency Concerns?

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