The Three Bankruptcy Types Available in Australia

Bankruptcy … just one word, but with more than a single option.

Under the Bankruptcy Act 1966, there are three distinct bankruptcy types … each with its own benefits, downsides, rules, eligibility needs, and most importantly, long-term consequences.

Whether you’re thinking about making yourself bankrupt, or are finding yourself under severe stress from creditors, knowing the options available can be the difference between chaos and control, defeat and a positive future.

Let Ash Walker Lawyers lead you through the often confusing world of personal insolvency choices … allowing you to make an informed, advantageous decision.

Considering Bankruptcy?

Type 1 – Formal Bankruptcy

This is the big one, and what most people think about when they hear the word bankruptcy. Generally, it means that you’re legally declared to be incapable of paying your debts.

And, while beneficial, it’s also serious. On the plus side, it can give you the new beginning you need, releasing you from many of your debts. On the downside, it can make obtaining credit difficult and possibly harm your professional reputation.

Bankruptcy can happen in one of two ways:

Voluntary Bankruptcy

Sometimes admitting to yourself that you can’t pay your debts and you need a way out, is the best, and most powerfully proactive, solution.

You submit a debtor’s petition … either online or in written form … to the Australian Financial Security Authority (AFSA). And, as long as it’s accepted by the Official Receiver, then you become bankrupt.

Court-Ordered Bankruptcy (Forced Bankruptcy)

It could be that, due to mounting debts, your bankruptcy is forced on you. If you owe $10,000 (or more) to a creditor … such as the ATO, a trade supplier, or a bank … they can take action. They send you a bankruptcy notice, and if you fail to respond adequately in 21 days, they file a creditor’s petition with the court.

Subsequently, should this petition be successful, the court issues a sequestration order that declares you as bankrupt.

Type 2 – Part IX Debt Agreements

Being declared bankrupt isn’t the only way out of debt. A Part IX Debt Agreement is ideal for people with more modest unsecured liabilities … such as smaller loans, credit cards, and store loans … and who have the ability to repay the debts over a determined period, often as affordable monthly instalments.

Both you and your creditors must agree to the terms, which are then declared formally, and typically last for up to three years. For you, it means that bankruptcy is avoided. For your creditor, it often means that they receive more money under the agreement than they would if you were declared bankrupt.

Type 3 – Part X Personal Insolvency Agreements

When your debts are both secured and substantial, a Part X Personal Insolvency Agreement (PIA) could be the solution. Depending on this legally-binding arrangement’s agreed terms, it could involve paying a lump sum, selling your assets, or a time-structured payment plan.

A trustee takes control of your assets and makes proposals to your creditors on how you will repay them. You address the debt as agreed, and the trustee checks that you fulfil your duties. This option is often appealing for people who want to avoid the public embarrassment and career restrictions brought about by bankruptcy.

Choosing a type of bankruptcy is akin to getting on a plane to go on holiday … once you’re en route, there’s no easy way to get off.

Your opted-for direction will bring a number of results and outcomes that may or may not be beneficial. These substantial impacts can include:

• Restrictions on credit – affecting how easy it is for you to get loans, mortgages, credit cards, and even some utility services.
• Loss of belongings – your home and other property, your car, investments, or collectibles could be sold to pay off debts.
• Career impacts – some trade bodies, for example, Chartered Accountants, will not accept bankrupts, and you may be forbidden from being a company director.
• Income payments – if your wealth goes over a certain limit, you might be made to make compulsory additional payments to address your debt.
• Travel restrictions – in some circumstances, you might have to get a permission letter from a trustee to leave the country. If you don’t, you might be committing an offence.
• Public knowledge – if your insolvency is listed on the NPII, anyone who is interested can search you out, which may adversely affect your reputation, or personal or business interests.

The table below gives you a straightforward and clear comparison of the bankruptcy choices.

However, nothing can compare to focused and targeted advice provided by a lawyer experienced in personal insolvency … so always seek professional legal guidance.

Let’s Talk Through Your Options Together

Naturally, sometimes we all make wrong decisions in our daily lives. But, making a mistake when choosing a specific bankruptcy choice can lead to long-term, devastating consequences … dramatically affecting you, your family, and your future.

And, trust us, bankruptcy definitely isn’t the time for DIY solutions, advice from a mate down the pub, or a YouTube how-to video.

The Benefits of a Personal Insolvency Lawyer in Bankruptcy

• Reassurance and calmness – facing bankruptcy is never easy. A lawyer shows you there are positive routes forward, and guides you only in your best interests.
• Tailored guidance – a legal professional takes into account all your personal, family, and career circumstances as well as your debts, allowing for measured and considered bankruptcy type advice.
• Informed option decisions – an expert lawyer leads you through the legal requirements, eligibility needs, personal consequences, and timeframes of each bankruptcy option, allowing you to make an educated choice.
• Powerful negotiation – masters of skilful negotiation, a legal professional will talk with creditors and collaborate with trustees to ensure positive outcomes.
• Taking the strain – talking to creditors, taking on the weight of your insolvency burdens, and speaking to the ATO on your behalf provides you with a release from the stress and worry you’ve been experiencing for so long.
• Legal safeguarding – lawyers work ceaselessly to protect your rights, your home, and your best interests from unscrupulous, unlawful, and unfair creditor claims, and defend against creditors’ petitions if needed.

Opting to go into bankruptcy, and deciding on the best of the three types for you, is a significant move with lasting consequences. That’s why you need expert, understanding legal advice.

Ash Walker Lawyers have compassionately guided hundreds of individuals facing financial difficulty through the complexities of personal insolvency. With understanding and knowledge, we will take you through your options, and deliver tailored advice that brings reassurance, clarity, and a positive future.

Be Proactive! Speak to Ash Walker Lawyers NOW About Bankruptcy Types

Can You Run a Business if You Are Bankrupt?

It depends. Usually, you can still run a business as a sole trader, but there can be some restrictions. So, if you decide to operate an enterprise, but use a name for it that’s not your own, you must declare your bankrupt status to everyone you deal with … like suppliers, customers, and financial institutions.

But you cannot be a director if you’re bankrupt, so you can’t take that role in a company.

Do You Keep Your Stuff When You File Bankruptcy?

Typically, even in bankruptcy, you can keep your personal things like general household items, your clothing, and the stuff you need for your job. However, items of high value or those considered as unnecessary luxuries could be sold to pay off your debts.

Will My Employer Fire Me if I Go Bankrupt?

Bankruptcy shouldn’t stop you from working for someone, and in most circumstances, the Australian Financial Security Authority (AFSA) won’t tell your employer.

That said, some professions … like construction, law, and finance … may have trade bodies or licensing requirements that don’t permit bankrupts.

What’s the Difference Between a Part IX and a Part X?

Here are the main differences in these bankruptcy alternatives:

• Part IX debt agreement – ideal for those people on relatively low incomes and whose debts and assets are below a determined limit.
• Part X personal insolvency agreement – more suited to significant debts and asset situations.

Have More Questions About Bankruptcy Types?