Debts and bankruptcy

The Australian Financial Security Authority (AFSA) manages the application of bankruptcy laws in Australia. AFSA is where most of your questions about bankruptcy are likely to be answered. Here’s a summary.

If you own a company, then it might be your company that is facing bankrupt (other terms are: insolvent, under administration or wound-up). However, depending on your business structure, it could also be you personally that is facing bankruptcy.

If you owe someone more than $5,000, then they might try to make you bankrupt. (This amount is current at January 2018.)

You can also make yourself bankrupt if you can’t pay your debts when they are due.

To find a financial counsellor, call the National Debt Helpline on 1800 007 007.

What a bankrupt can and can’t do

The AFSA has all the up-to-date information about what you can and can’t do as a bankrupt. (Check the AFSA website as the information can change.)

You can still earn about $55,000 a year after tax and not have to contribute to your debts. You can earn a little more than that if you have dependents and don’t pay off the debts e.g. if you have two dependents, you can earn about $69,500.

If you earn more than what is permitted, half of what you earn over that goes to paying off your debts.

You can keep tools of your trade up to a value of $3,750 and a car valued up to $7,700, along with most household items. Everything else you own can be sold off and bank accounts emptied to pay debts.

You still have to pay fines, child support and HECS debts.

Some professions may restrict you from having a job if you’re a bankrupt, and you can’t be a director of a company.

Your name goes on a list of bankrupts, forever, but the other restrictions usually last for three years and one day.

Other than that, you don’t have to pay the debts you had.

If someone who owes you money is going bankrupt

If someone owes you money, it’s possible they also owe other people (creditors) money, some of them may even be secured, such as a bank which loaned money on particular assets.

If you force the other person into bankruptcy, you are unlikely to recover the full amount of money they owe you.

There are aspects of bankruptcy that seem like punishment e.g. the bankrupt can’t travel overseas easily, they have a permanent record and it will be harder for them to get a loan. None of this puts money in your pocket, as the creditor.

This is why it’s important to:

• be careful about who you lend money to, give credit to, or give things to without getting payment
• maintain a relationship and try to stay aware of how the other side of any of your business deals is performing, and
• be prepared to negotiate with debtors to maximise what you can get if they are struggling.