If you or someone you know are unable to repay your debts, one option is to go bankrupt. This is a legal process with serious consequences. If the debts are the result of an abusive partner or family member, make sure to seek advice from a financial counsellor, Women’s Legal Service or Community Legal Centre before committing to this step.
If someone "goes bankrupt", a government agency called the Australian Financial Security Authority will appoint a trustee to manage their bankruptcy unless they appoint one themselves. They will need to supply the trustee with details of their debt, income and assets. The trustee then notifies organisations who are owed money (creditors) that the person is unable to pay and the creditors will no longer be allowed to be in contact about that debt. The trustee may sell a person's assets, including their share in any property, and if they are earning an income they may need to make compulsory payments.
Bankruptcy lasts for three years and will impact a person's 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 a credit report for a couple of years after it has ended. Being bankrupt can also affect a person's ability to travel overseas and their 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 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.