What happens when you declare bankruptcy?
Is bankruptcy your best option?
If you have a lot of debts you may wish to declare yourself bankrupt. It’s a big decision that can have serious consequences. It’s important to reach out to a financial counsellor first so that you are aware of your options.
What is bankruptcy?
Bankruptcy is a legal process where you declare (or are declared) that you are unable to pay your debts. You hand over your debts and assets to a Trustee to manage the payment of your debts.
There are two ways of becoming bankrupt:
- Your creditors can make you bankrupt (this is called involuntary bankruptcy and is more likely to occur if you have an asset that can be sold to repay some or all of the debt).
- You apply to become bankrupt (this is called voluntary bankruptcy).
Some debts are not cleared by bankruptcy. These include fines, fraudulent Centrelink debts and Child Support debts.
How long does bankruptcy last?
You are usually bankrupt for three years and one day. The bankruptcy will remain on your credit file for five years or two years from the date the bankruptcy ends (whichever comes later). You will be listed on the National Personal Insolvency Index for life. This is a public record that anybody can access after paying a fee.
What are the advantages?
If you have a lot of debts, have no way to repay them and feel overwhelmed, declaring bankruptcy may lift a lot of the stress from your shoulders. The biggest advantage of bankruptcy is that it can provide a fresh start for people whose circumstances have changed from when they first took out the debt. But it may not be the only option, and this is where a financial counsellor can help.
What is the role of a financial counsellor?
A financial counsellor has a duty to you to help you look at all your options before you make this decision.
Some clients who ask for help with a bankruptcy application change their minds when they find out that another option is better for them. For example, some people decide that options like simply asking for repayments to be suspended for a few months or asking to be released from the debt provide a better result for them. In some cases, doing nothing is the best option!
What should I do next?
If you have unmanageable debt and are thinking about bankruptcy, ask a financial counsellor for an appointment to explore all your debt options first. The counsellor will assist you to review your financial situation and work out a plan that best suits you.
For further information
Tasmanians who call the National Debt Helpline on 1800 007 007 will be connected with a professional financial counsellor from Anglicare. Their advice is free and confidential. You can also chat online to a financial counsellor via the National Debt Helpline website here.
There is more information about bankruptcy available at https://www.afsa.gov.au/insolvency/cant-pay-my-debts/consequences-bankruptcy
Find out more about Anglicare’s Financial Counselling services here.
