Personal Insolvency Management

Understanding Bankruptcy

“Draw a line in the sand and move forward”

While bankruptcy is a legal process, it is designed to protect you and may give you the fresh start you’ve been looking for. If debt is building up, the best path may be to voluntarily file for bankruptcy. Some of the personal advantages include: immediate relief from debt pressure, a fair division of your assets, and an assessment of your finances to look for possible exemptions from the settlement.

Of course, there are obligations. Once you have filed for bankruptcy your assets, books, records and financial statements will be provided to the Trustee and you won’t be able to act as a company officer. You will have to declare your status as bankrupt if engaging in future business or accruing debt over a set amount and there will be international travel restrictions. On the upside, you may continue earning income while bankrupt, with payments made towards the estate only when you reach a certain threshold.

Bankruptcy may also be declared by the Federal Court at the request of a Creditor. If you are a Creditor getting nowhere with an individual debtor who owes you over $5,000, you may want to consider petitioning the Court to declare them bankrupt. The first step is to chat to your solicitor who, if you have already obtained judgement, can serve the debtor with a Bankruptcy Notice, and then after 21 days, petition the Federal Court or Federal Magistrates Court to declare the debtor Bankrupt.

At BPS Recovery we understand that the decision to pursue bankruptcy is not an easy one – we are here to support you with your decision – so you can move on with your life.

Impact on property once you are bankrupt

Even in a bankruptcy situation, certain personal items are exempt from being handed over. Subject to limitations, these items may include necessary clothing and household items, tools of trade, a motor vehicle, life assurance or endowment policies, certain damages and compensation payments, sentimental property, and super. So you can get on with your life. Your other property (both currently owned and acquired during bankruptcy) will be controlled by the Trustee. During the bankruptcy period, the Trustee is given the rights and powers that you had before bankruptcy, as well as recovery powers.

They can sell any of your assets, investigate your affairs, examine you and other relevant parties under oath, conduct and sell any of your businesses, and deal with any of your debts. They will look for records of transactions that are against the rules, including improper sales or transfers of property that occurred within the last five years, (especially if a sale was at less than market value,) and any preferential Creditor payments in the last six months. The Trustee may have their name placed on the title deed of your property, and will also manage any repayments made to you by a trust from loans or other entitlements. If a property is co-owned and an agreement cannot be reached to recoup the debt, they can force the sale of the property.

The period of bankruptcy will pass relatively quickly. Only three years after you file your Statement of Affairs, the bankruptcy is discharged and you can move on. Note: in some cases sorting out the estate may take longer than three years and if you fail to cooperate with the Trustee or adhere to the requirements – e.g. leave Australia or take on a management role in a company – the bankruptcy period can be extended for up to another five years.

Under certain circumstances an annulment may even be granted, cancelling the bankruptcy and reinstating your affairs as though no bankruptcy occurred.

Part X

“There may be a practical, affordable and realistic solution if you explore the options.”

Part X refers to the section of the Bankruptcy Act which allows an individual to make a Personal Insolvency Agreement(PIA) with their Creditors to resolve their personal debt. It is designed to assist individuals who cannot repay their debts, to do the right thing, and in doing so, relieve the burden of debt.

The PIA forms an agreement with your Creditors defining how you will satisfy your debts. It provides solutions to: obtain relief from your debts; ensure a fair distribution of your assets; provide a higher dividend than would be payable in bankruptcy; maintain your source of income; and avoid the restrictions of bankruptcy. It typically outlines the payment plan and sale of some assets, which in total may be less than the full debt amount.

Part X might be a positive option for you, if you are insolvent, based in Australia (or have an Aussie connection,) and have something to offer creditors towards your debts (i.e. assets to sell, future income, or money from a third party.) It can help to tidy up your financial affairs in a simple and fair way, even if you can’t pay all of your debts in full, (as long as you haven’t proposed another PIA in the last six months). If a majority of your Creditors accept it, your PIA will proceed.

On the plus side, only property listed in the PIA is included in the settlement, with all other assets protected from your Creditors. While it does mean a note on your credit rating (Section 188 authority,) it can help you avoid bankruptcy. Of course some conditions apply, such as preventing you from acting as a director of a company during the PIA term.

Your PIA will be completed when you deliver on the terms of your proposal and the funds are distributed to your Creditors.

If you are exploring the option of utilising Part X of the Bankruptcy Act, reach out to us and we can help you get started.

Section 73

Under a Section 73 proposal, your bankruptcy can be annulled as long as you can pay more to your Creditors than they would have received in the bankruptcy… that way everyone wins!

The proposal can take one of two forms; a composition, where money is paid into the administration to pay Creditors and fees, or a scheme of arrangement, where anything can be used to pay off the debts, including money, sale or transfer of property, or a payment from a third party.

If you want to apply for a Section 73, you can make a written proposal to deal with your debts and your Trustee will submit it to your Creditors for approval. If the proposal is accepted by a majority of Creditors, then the annulment will commence from the date of the creditor meeting. If it is not accepted, your bankruptcy will continue.

The Section 73 will end once everyone has delivered on what they promised.

If you are looking to have a bankruptcy annulled under Section 73, let us know and we will give you the best possible chance of success.

66G Trustees for sale

If you become bankrupt while still jointly owing a property with another party, the co-owner can buy out the property or join in the sale of the property. If they don’t agree to do so, you can petition the Court to sell, or to appoint a Trustee for this purpose using Section 66G of the NSW Conveyancing Act 1919.

It is the Section 66G Trustee’s responsibility to sell the property at the highest market value and usually to take legal steps to obtain vacant possession. Secured debts are paid out upon settlement of the property and any additional money earned from the sale is distributed according to Orders of the Court. Costs incurred for appointing the Trustee, the sale, court costs and legal fees end up being indirectly paid by the co-owners.

Section 66G is our forte, so if you are involved (or likely to become involved) in a Section 66G application, we’re here to help.