Inside Insolvency: Bankruptcy & Personal Insolvency

Personal Insolvency Overview

With the Australian Financial Services Authority (AFSA) reporting over 20,000 bankruptcies in the 2012-3 financial year, it is clear that none of us are immune to the constant economic pressures on daily life. From sudden employment and over-reliance on credit to relationship breakdowns and ill health, there are many reasons why people suffer financial hardship and experience unmanageable debt.

Declaring Bankruptcy – What’s Involved

Declaring bankruptcy voluntarily in Australia is a straight forward process and involves completing two separate forms and lodging them with the Australian Financial and Security Authority (“AFSA”).

Annulment of Bankruptcy or Cancelation of Bankruptcy

Annulment is effectively the cancellation of a bankruptcy. There are three ways a bankruptcy may be annulled.

Assets, Debts and Income in Bankruptcy

When you’re unable break a persistent debt cycle, credit card or mortgage defaults, debt collection letters piling up and creditors at your door, bankruptcy may be the only option.

Bankruptcy and Employment

While bankruptcy doesn’t directly affect your employment, it may have consequences if you hold any licences or qualifications.

Bankruptcy and Houses

How does personal bankruptcy impact the family home?

If an individual is made bankrupt, it is not necessarily the case that their house will be sold from under them.

Bankruptcy and Overseas Travel

Some people worry about the restrictions of being bankrupt, particularly whether they can travel overseas.

If you’re one of those people, then you’ll pleased to know you can travel overseas, as long as you get permission from your trustee beforehand. As long as you’re complying with your Bankruptcy, the Trustee shouldn’t have an issue with you travelling.

Bankruptcy Family Trusts

Family assets are commonly protected by the use of a structure named a discretionary trust (sometimes referred to as a ‘family trust’). This type of trust provides a firewall of protection for family trust assets.

Discharge or Finalisation of Bankruptcy

The discharge of bankruptcy means that the individual is no longer bankrupt.

The date of discharge of bankruptcy will vary depending on the type of bankruptcy.

Personal Insolvency Legal Action

There are many ways a creditor can seek to recover payment of a debt from an individual who cannot, or refuses to, pay that debt. Individuals should be aware of their rights and obligations in the event that debt collection processes are in motion and they are exposed to legal action and enforcement.

Tax Refunds During Bankruptcy

If you’re facing bankruptcy, you may be wondering how tax refunds are treated in such a situation.

Here are some general guidelines on how the Australian Taxation Office (ATO) deals with these situations. However, you should always get professional advice for your particular situation.

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