Credit and Debt

Credit and Debt

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Bankruptcy

Bankruptcy means that a person has been declared to be unable to pay their debts under the Bankruptcy Act 1966 (Cth) (Bankruptcy Act).   Bankruptcy is a legal status where people who cannot pay their debts give up their assets and control of their finances, either by agreement or court order, in exchange for protection from legal action by their creditors.  Once a person is declared bankrupt: 

  • a trustee will be appointed to control the client's financial affairs and will be responsible for working out if, and how much, the client's creditors can be paid;
  • the trustee will take measures to pay the creditors, including confiscating and selling the client's assets (with the exception of ordinary household items listed in Warrant to Seize Property);
  • the client's creditors will be notified of their bankruptcy and unsecured creditors should stop pursuing the client for payment of their debts (section 58(3) of the Bankruptcy Act).

Bankruptcy has long term consequences and it is very important that your client is properly advised of these (see What are the Consequences of Bankruptcy?).  In short, bankruptcy is an option for clients on low incomes with no savings or assets and no realistic prospect of paying back debts.  Even then, it is not always the only or most desirable option.  If your client is contemplating voluntary bankruptcy, they should consult a financial counsellor for assistance in providing advice and lodging an application for bankruptcy if appropriate.  

 

The  Australian Financial Security Agency (AFSA) is a good source of up to date information on bankruptcy and other options for debtors who are not yet bankrupt.