Bankruptcy Video

Hi I’m Steven Kugel. Welcome to the Insolvency Experts.

What I’m going to talk about today is the idea of Bankruptcy.

Now this might sounds strange but I believe that bankruptcy is terrific — but only in the right set of circumstances.

And by the right set of circumstances I mean that a person is in a situation of overwhelming debt. Debt that a person will never jump over in many many years.

That’s when I say it is a terrific solution.

If you are considering declaring bankruptcy for debts of $15,000 to $20,000 you would have to think about that decision very closely as there is a very significant and real negative long term affect on you.

The first of those negatives is you are going to be listed on something called the National Personal Insolvency index — a government index for life. This is able to be searched and you cannot remove yourself from that.

You will also be listed on the commercial credit rating agencies for a period of 7 years and every time you apply to a bank or financial institution you will have to answer the question “have you ever been bankrupt?” — and of course, once those institutions see that, they immediately see you as a risk.

So the idea of declaring bankruptcy will affect you for a very long time — and if you’re young and aspire to buy a house, you will certainly find that very difficult for years to come.

Now if you are going to declare bankruptcy, you will understand that the usual term of bankruptcy is 3 years — however also appreciate that bankruptcy may be extended in certain circumstances up to a total of 8 years.
For most people who follow the rules, bankruptcy lasts for 3 years and you are immediately relieved of all your debts with the exception of a few including

Higher Education charges, government fines and family payments.

Also, if you are considering bankruptcy, ensure all your tax returns are brought up to date prior to declaring bankruptcy so that the outstanding debt is included in your bankruptcy. On this, also understand that if there is a tax debt, and you are then due a refund during the bankruptcy period, that the ATO is very likely to claim that refund before it ever reaches you — that is simply one of the costs of bankruptcy.

Now, to dispel a few commonly held myths.

In bankruptcy there is no limit to the amount a person can earn however once a person earns over certain limits set by law, they are require to make contributions to their bankruptcy. As a single person, those payments do not start until you exceed an annual income of about $56,000 and of course the amount goes up depending on the number of dependants you have.

As a rough guide, if you earn $100,000 per annum with no dependents, you can expect to pay about $14,000 by way of compulsory contributions per annum for each year of the bankruptcy. In a 3 year bankruptcy that would be $42,000 but of course, if your debts were $200,000, you are relieved of the balance once you contributions have been paid.

In bankruptcy, it is often believed that you are not able to travel overseas. Again, this is not the case however there are restrictions.

If a bankrupt person wants or needs to travel, they must seek the permission of the bankruptcy trustee which is normally done in writing together with the reasons and itinerary of the dates of travel. At the insolvency experts, we can generally respond to such a request for travel within 24 hours

In bankruptcy, you can have a car up to a set value. This figure is reviewed twice a year and is currently $6,850 at the end of 2010.

Of course, while you fight off bankruptcy, assets like cars may be collected by the sheriff and sold for the benefit of your creditor. So in may way, bankruptcy is about protection of the individual.

There are other restrictions and you are welcome to call us anytime to discuss.

Now while bankruptcy will relieve a lot of stress that people face while they are being pressed by their creditors, bankruptcy will also result in the loss of major assets such a houses, investments etc.

Certainly, a bankruptcy trustee will not take the contents of a person’s home unless of course that house is full of valuable antiques and art works but a

Trustee will take possession of a bankrupt’s house and sell it to recover the equity for the benefit of creditors.

What I mean by equity is that if the house is worth $400,000 and there is a mortgage of only $300,000, then there is equity or an asset of $100,000 that is available to meet the claims of the creditors.

There are certain cases of course where the bankrupt is married but his spouse is not bankrupt. In those circumstances, it is likely that we as Trustees would meet with the non bankrupt spouse and see whether that person had a desire and the ability to acquire or purchase the bankrupt’s equity share in the property.

If that is possible, the family does not need to be dislocated.

Of course, if this is not possible, we will have to reach agreement with the non-bankrupt spouse in order to effect and orderly sale of the property and of course, the bankrupt’s equity share of the property would be paid into the estate for the benefit of the creditors and the balance would be paid to the non bankrupt spouse.