Signs of strife: Is bankruptcy the right option for a client?
Bankruptcy. No-one likes to think about it, and it’s nearly always the last resort. But for people with unmanageable debt, it may well be the most appropriate option.
Unfortunately a lot of faceless websites and self-proclaimed ‘experts’ are providing bankruptcy advice despite not being adequately qualified or regulated to provide it. And even some legitimate organisations will charge between $300 to $400 to help your client complete and lodge the necessary forms.
Rather than send your clients down that path, we are happy to meet with your client for a no-obligation, complimentary consultation to help them get the information they need to make the right decision.
Mitch and Chad, the founders of Rapsey Griffiths, are both Registered Trustees with Australian Financial Security Authority (AFTA), and members of the Australian Restructuring Insolvency & Turnaround Association (ARITA). ARITA is the professional body for both Australian insolvency practitioners and those working in the field of business reconstruction and corporate and personal insolvency.
So if your clients are struggling to pay their debts, what are their options?
Informal arrangements are agreements between you and your creditors that aren’t bound by legislation or formalised by contract.
For example, you could negotiate an arrangement with the creditors that would reduce your client’s debt level, or come up with a repayment plan that’s mutually beneficial. You can either contact the creditors directly, or we can speak to them on your client’s behalf.
However, an informal arrangement isn’t always the easiest option. All creditors need to agree to the offer, and the offer isn’t binding on all creditors. For example, while most creditors may agree to a revised payment schedule, one or more creditors may reject the offer and continue taking action, jeopardising the entire informal arrangement.
The Bankruptcy Act provides formal options for dealing with unmanageable debt. And the legislation specifically sets out what your client and their creditors can and can’t do under each arrangement.
Interim relief – Declaration of intention to present a debtor’s petition
This stops unsecured creditors garnisheeing your wages and/or the bailiff or sheriff seizing your client’s assets to recover debts for 21 days. However, it does not prevent a secured creditor from repossessing an asset.
This gives you time to speak to creditors, and lets your client consider their options and seek advice.
Your client doesn’t have to become bankrupt after this period, although a creditor can move to force your client into bankruptcy.
A debt agreement is a legally binding arrangement between your client and their creditors that must be accepted by the majority (in value) of the creditors. The agreement is flexible, and the offer can be paid either in instalments or as a lump sum. The proposal will also include a freeze on your client’s debts, and a timeframe of completing the agreement.
Read more about debt agreements.
An individual can become bankrupt either voluntarily (debtor’s petition) or involuntarily (creditor’s petition).
Voluntary bankruptcy / debtor’s petition
If an individual hasn’t been able to make an informal arrangement with their creditors, or the amount they owe to creditors is insurmountable, they can file a debtor’s petition.
Involuntarily bankrupt / creditor’s petition / Creditors making you bankrupt
If an individual can’t pay their debts, and they haven’t made an arrangement with creditors or voluntarily made themselves bankrupt, a creditor may choose to apply to the court to have that individual made bankrupt.
9 common questions about bankruptcy
Bankruptcy has a number of impacts on an individual’s life. Here are answers to the most commonly asked questions about bankruptcy.
- What will happen to my assets in bankruptcy?
- What will happen to my home?
- What happens to my income while I am bankrupt?
- What are my obligations while I am bankrupt?
- What are my debts?
- What objections could there be?
- Can I leave Australia is I become bankrupt?
- How does a composition work?
- When does bankruptcy end?
Read more about bankruptcy.
Personal insolvency agreement
A Personal Insolvency Agreement (PIA) is a legally binding arrangement where the individual offers to pay their creditors in full or in part by instalments or a lump sum.
A PIA can be very flexible, and can involve:
- lump sum payments to creditors (possibly involving funds from a third party)
- transfer of assets to creditors
- sale of assets, and payment of the proceeds to creditors
- a repayment arrangement with creditors
- a combination of these elements.
An individual will appoint a controlling trustee who will investigate their affairs and report to their creditors. Should creditors accept the proposal, a trustee must administer the agreement.
Of course, the PIA will have to be attractive enough for the creditors to vote in favour of it, rather than proceeding to bankruptcy.
Read more about Personal Insolvency Agreements.
Helping your client at first signs of trouble
If your client is struggling to repay their debts, it is important for them to get help straight away so they understand their options. If you need more information on bankruptcy or you’d like a confidential consultation about a particular client, contact Mitch or Chad and we’ll make a time to meet and discuss the matter with you.