If you are unable to repay your debts, one option is to go bankrupt. This is a legal process with serious consequences. If your debts are the result of an abusive partner or family member, make sure you have sought advice from a financial counsellor, Women’s Legal Service or Community Legal Centre before taking this step.
If you go bankrupt, a government agency called the Australian Financial Security Authority will appoint a trustee to manage your bankruptcy unless you appoint one yourself. You must supply the trustee with details of your debt, income and assets. The trustee then notifies organisations you owe money to (creditors) that you are unable to pay and they will no longer be allowed to contact you about that debt. The trustee may sell assets in your name, including your share in any property, and if you are earning an income you may need to make compulsory payments.
Bankruptcy lasts for three years and will impact your credit rating. This could make it difficult to obtain credit or new accounts for certain services (eg. A mobile phone). The bankruptcy will remain on your credit report for a couple of years after it has ended. Being bankrupt can also affect your ability to travel overseas and your employment in certain professions, so it is not a decision to be taken lightly.
Bankruptcy law enables several other approaches to dealing with unmanageable debt, all of which have certain eligibility criteria and consequences. It is important to talk with a free, independent, qualified financial counsellor to fully understand your options. Options under Bankruptcy law include:
- A debt agreement - a legal agreement with an organisation you owe money to repay the debt on terms you can afford.
- Personal insolvency agreement - an alternative way to come to a binding agreement with your creditors using a bankruptcy trustee to take control of your assets and make the creditors an offer.
- Temporary debt protection - provides you a 21 day protection period from creditors taking action to recover money you owe them. This protection only covers unsecured debt. Creditors can still try to recover secured debts like a house.