Purpose of writing this blog is to assist Australians with one of the most difficult financial decisions they’ll ever face. The terrifying decision of weather or not to file for bankruptcy on a voluntary basis.
Note: The information gathered here is not a financial advice
Your Guide to the Benefits and Drawbacks of Bankruptcy
To help you decide whether bankruptcy is the best solution for your financial problems, we’ve put together a list of the Pros and cons that come with bankruptcy. Bankruptcy laws in Australia have become extremely complicated, making it difficult to determine whether it is the best option for you. The conditions that will be imposed on you if you declare bankruptcy may appear difficult to understand, and it is difficult to know their full implications without prior bankruptcy experience.
That is why, before filing for bankruptcy, you should read this blog carefully.
The Benefits and Drawbacks of Bankruptcy
Although bankruptcy can provide relief if you are unable to repay your debts, there are some consequences that you should be aware of, being aware of these consequences can assist you in determining whether this is the best option for you and I often see people who are worried about the possibility of declaring bankruptcy. There are definitely flaws in this, and it should never be the first line of defense for people in financial trouble. It should always be a priority to determine if the loans can be repaid in the first place. However, if all other options are gone, that’s not a bad thing at all. In fact, it may be the most beneficial way to get out of debt and start anew.
Pros of Filling Bankruptcy in Australia
All debtors considering bankruptcy should consult a financial advisor or accountant on how they will affect bankruptcy and what better options are available.
Bankruptcy can make old tax liabilities (older than three years) go away
Your three-year bankruptcy period will not begin until you have submitted Bankruptcy form and been accepted by the Australian Financial Security Authority.
- You won’t have to pay back most of your debts now
Now that you’re bankrupt, you’ll be able to start rebuilding your financial future.
- The Bankruptcy Act of 1966 (Cth) provides significant protection to supervisory payments (Part IV, Division 3, Subdivision B), Life Insurance Payments (s116 (d) (i)) and Compensation for Personal Injuries (s116). (g) (i)).
The Act also provides some protection to assets purchased with these payments. However, these payments and assets are not secure unless the debtor goes bankrupt and the lender succeeds in paying the debt on a court order.
- Creditors and debt collectors stop bothering you.
Once your bankruptcy has begun, unsecured creditors cannot contact you and must contact your Bankruptcy Trustee.
- Bankruptcy exemptions may allow you to keep ownership of your property after filing for bankruptcy.
If you can “exempt” an asset, you won’t have to worry about it being confiscated during the bankruptcy process. These exemptions are relevant in both Chapter 7 and Chapter 13 bankruptcies. Some exclusions protect an asset up to a particular cash amount; in other cases, the exemption protects the entire item’s worth. Some exemptions apply to certain sorts of assets, such as a car or a wedding ring, while others apply to whatever property you own.
Some essential benefits
- You can run a business under your own name. If you choose to operate under your own name, you are not required to disclose your bankruptcy.
- You can travel abroad even if you are bankrupt. You must obtain formal authorization from your Trustee, which is typically not a problem.
- Your bankruptcy is not advertised. Your bankruptcy will last up to 2 years after your credit file is released from bankruptcy, but then it disappears.
- Your employer-paid superannuation is safeguarded. Superannuation that is paid to you at the correct rate is safe from creditors and can be used for retirement or a suitable early withdrawal.
- Tools for earning money are safeguarded. You can keep any tools that you use to make money that are valued less than the threshold amount (currently $3,800).
Bankruptcy Act & Regulations: s116(2)(c)(i) r29
Cons of Filling Bankruptcy in Australia
People who go bankrupt face a lot of disadvantages, some of them the worst.
For the next seven years, your credit rating will be impacted, affecting your ability to obtain credit.
Bankruptcy remains on your credit record for two years after you file for bankruptcy. It will remain on the Federal Government’s National Personal Insolvency Index (NPII) permanently. This index is not widely available to the general public, but it can be searched provided if the specified charge is paid at the Australian Financial Security Authority.
- Bankruptcy does not clear all debts
Certain types of debts are not dischargeable through bankruptcy. Alimony and child support, school loans, criminal restitution and fines.
- Obtaining a mortgage or loan is difficult.
For many years, a bankruptcy filing might make it impossible to obtain another loan or mortgage.
- Restrictions for SMSF and Company Directors
While bankrupt, you cannot be a trustee of a Self-Managed Super Fund or a director of a corporation. If you’re in this circumstance and your SMSF’s assets aren’t easily liquidated or you need to be a business director, consult with a financial advisor.
- Assets you cannot own if you are Bankrupt
Unprotected assets, such as boats, caravans, and residences, will be lost to your bankrupt estate.
A friend or family member may be able to buy them from your bankrupt estate at a reasonable price, allowing you to continue using them.
Some Worst effects
- Your credit rating will be compromised for 7 years, affecting your ability to obtain credit.
- You may have difficulty obtaining credit in the future.
- It may have an impact on job opportunities.
- It can have an impact on your possibility of working in some professions.
- For the rest of your life, your name will appear on the National Personal Insolvency Index (NPII).