TAKING BANKRUPTCY SERIOUSLY. Getting help with financial difficulties on the Central Coast
I am often asked by clients experiencing financial difficulties about filing for bankruptcy. They often see this as the only (or easy) way out of their financial difficulties.
Bankruptcy is one of the legal options available to someone who cannot pay their debts. By filing for bankruptcy, a person is saved from having further legal action taken against them for the recovery of debts owed by them. In most cases, a person is discharged from bankruptcy after three years.
There are, however, serious consequences in filing for bankruptcy. These include:
- Being listed as a bankrupt on a credit reference record. This effects a person’s ability to obtain credit from a lender;
- The name of the bankrupt is recorded on the National Personal Insolvency Index forever;
- A bankrupt may find it hard to rent a property, have a telephone or electricity connected or obtain insurance;
- It may affect the bankrupt in obtaining employment or operating a business;
- During the period of bankruptcy, the bankrupt cannot travel overseas without the permission of the trustee.
Some debts are not covered by bankruptcy and the bankrupt will remain liable for the payment of these debts. Such debts include:
- Fines for breaches of law;
- Child support payments;
- Maintenance payments;
- HECS debts;
- Some Centrelink debts.
Sometimes clients who come to see me have had bankruptcy proceedings commenced against them and they want to avoid going bankrupt. Often, by the time they seek legal advice it is too late. It is important, therefore, not to ignore creditors demands in a hope (often unrealistic) that the creditor will go away. My experience is that, in most cases, a creditor does not want the trouble of commencing bankruptcy proceedings. More often than not, they are willing to work with the person who owes them money to try and resolve the problem. But when the debtor ignores their calls, the creditor is left with little choice.
A creditor is entitled to commence bankruptcy proceedings in the Federal Court or the Federal Circuit Court when the debtor has committed an act of bankruptcy. In most cases, an act of bankruptcy occurs when the debtor fails to comply with a bankruptcy notice.
A person who has been served with a bankruptcy notice has 21 days to comply with the notice. An application may be made by the debtor to set aside the bankruptcy notice or to extend the time for compliance with the bankruptcy notice. Often, persons wishing to do this find themselves fighting a “rear-guard action” which is why it is better to act earlier rather than later.
As an alternative, a debtor faced with the prospect of bankruptcy can enter into a formal or informal arrangement with the creditors which will avoid the consequences of bankruptcy. Again, the earlier that a debtor seeks to do this the better.