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Debtors
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There are several ways to deal with unmanageable debt. Some are informal options and others are formal options under the Bankruptcy Act 1966.
Informal Option |
Understand and control your circumstances: Many people can bring their financial situation under control themselves. You can:
Approach your creditors: You can talk to your creditors to try and arrange a negotiated settlement. Some creditors have hardship assistance provisions and, at their discretion, they may:
- give you more time to pay
- change the amount or timing of your repayments
- vary the terms of your credit contract, or
- accept a lesser amount of debt or payments.
Seek help: You can seek advice and assistance by locating and talking to a financial counsellor, accountant, debt agreement administrator or registered trustee. Financial counsellors and other advisors may be able to:
- speak to your creditors on your behalf
- advise you of your rights under the Consumer Credit code
- settle disputes
- help with budgeting
- suggest options other than the formal options outlined below
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Formal options |
If after considering the informal options above, you are still unable to deal with your unmanageable debts, there are three formal options available to you under the Bankruptcy Act 1966. ITSA strongly recommends you seek independent financial guidance before considering these options. (Note: Some financial services may charge a fee.)
You can also seek interim relief by presenting a Declaration of intention to present a debtor's petition which could allow you up to 21 days to decide whether to proceed with bankruptcy or any other option.
You should read the Personal Insolvency Information booklet to get a better understanding of each of the formal options. A comparative table of the distinguishing features of each option is shown below: |
QUICK COMPARISION OF FEATURES BETWEEN DIFFERENT TYPES OF PERSONAL INSOLVENCY ADMINISTRATIONS |
| Feature | Bankruptcy | Debt Agreement | Personal Insolvency Agreement |
| Australian connection |
Must have residential or business connection
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No residential or business connection required
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Must have residential or business connection
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| Previous insolvency |
While previous insolvency does not by itself make a person ineligible, the Official Receiver may not accept the petition if the debtor was previously bankrupt and some other conditions are met
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Must not have been a bankrupt, proposed a Personal Insolvency Agreement or made a Debt Agreement in the previous 10 years
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Must not have proposed another Personal Insolvency Agreement in the previous 6 months i
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| Income threshold |
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| Asset threshold |
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| Debt threshold |
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| Creditor agreement required |
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Yes (majority of voting creditors by value)
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Yes (majority of voting creditors by number and minimum 75% in value)
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| Period of administration/insolvency |
3 years, but can be extended by trustee under certain conditions. Can also end early if debts are paid in full or creditors accept a settlement.
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As per terms of the agreement
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As per terms of the agreement
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| Impact on credit rating |
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| Public record |
Yes, permanent record on NPII
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Yes, permanent record on NPII
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Yes, permanent record on NPII
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| Income, employment and trade |
| Payments from income required? |
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Yes, if the terms of the agreement require payments from income – this occurs in most cases
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Only if the terms of the agreement require payments from income
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| Ability to continue to operate a business |
May be possible depending on the nature of the business and whether business assets are to be sold by the trustee. If trading under a business name or assumed name (whether alone or in partnership) bankruptcy must be disclosed to all people dealing with the business.
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Yes, unless terms of the agreement provide otherwise. If trading under a business name or assumed name (whether alone or in partnership) the debt agreement must be disclosed to all people dealing with the business.
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Yes, if agreement allows for debtor to continue to operate the business
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| Ability to be a director of, or otherwise manage, a corporation |
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Not until terms of agreement fully complied with
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| Other employment restrictions |
Professional bodies and/or trade associations may have certain conditions of membership for the duration of the bankruptcy. There may be restrictions on holding some statutory positions during the period of bankruptcy.
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Professional bodies and/or trade associations may have certain conditions of membership for the duration of the agreement. There may be restrictions on holding some statutory positions during the period of the agreement.
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Professional bodies and/or trade associations may have certain conditions of membership for the duration of the agreement. There may be restrictions on holding some statutory positions during the period of the agreement.
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| Ability to retain assets |
No, unless it is exempt property (example household furniture, tools of trade up to a certain value)
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Yes, unless terms of the agreement provide otherwise
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Yes, subject to the terms of the agreement
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| Ability to retain assets acquired during the period of the agreement/bankruptcy |
No, unless property being acquired is exempt property
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| Can assets previously sold or transferred for less than market value be recovered? |
Yes, subject to certain statutory conditions being met
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Not unless the agreement specifies that the antecedent transaction provisions of the Bankruptcy Act apply to the debtor.
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| Can payments made to creditors prior to the agreement/bankruptcy be recovered? |
Yes, subject to certain statutory conditions being met
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Not unless the agreement specifies that the antecedent transaction provisions of the Bankruptcy Act apply to the debtor.
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| Unsecured debts |
Unsecured creditors receive pro rata payment from funds recovered by the trustee after fees and costs have been deducted. There are some statutory priority payments to particular classes of creditors like employees.
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All unsecured creditors receive pro rata payments
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Unsecured creditors can receive differential payment rates if the terms of the agreement provide for this. There are some statutory priority payments to particular classes of creditors like employees.
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| Secured debts |
Rights of secured creditors are not affected. They can repossess asset if there is default in payment.
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Rights of secured creditors are not affected. They can repossess asset if there is default in payment.
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Rights of secured creditors are not affected. They can repossess asset if there is default in payment.
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| Release from debts |
Upon discharge from bankruptcy, but not released from some types of debts
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Upon completing terms of agreement, but not released from some types of debts
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As per terms of the agreement, but not released from some types of debt.
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| Ability to travel overseas |
Prior consent of trustee required
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| Ability to travel within Australia |
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| Incurring further debt |
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Must disclose the debt agreement if incurring debt or obtaining goods and services in excess of a threshold (see current threshold on ITSA website)
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| Statutory filing fee |
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| Statutory levies |
A government levy is imposed on all receipts in the administration. Any interest earned on these receipts is also paid to government. (see current ITSA Fees & Charges)
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A government levy is imposed on all receipts in the administration. Any interest earned on these receipts is also paid to government. (see current ITSA Fees & Charges)
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A government levy is imposed on all receipts in the administration. Any interest earned on these receipts is also paid to government. (see current ITSA Fees & Charges)
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| Fees for administration of the estate/s |
Subject to creditor approval. Fee can be reviewed upon application to the Inspector General.
Note: Official Trustee’s fee is set by statute. (see current ITSA Fees & Charges)
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Subject to creditor approval. Fee can be reviewed upon application to the Inspector General.
Note: Official Trustee’s fee is set by statute. (see current ITSA Fees & Charges)
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| Who can administer? |
Registered Trustee or Official Trustee
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Registered Debt Agreement Administrator, Registered Trustee, Official Trustee or another person (provided that person administers five or fewer debt agreements)
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Registered Trustee or Official Trustee
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| Act of bankruptcy |
Presenting a debtors petition for bankruptcy is an act of bankruptcy and a creditor who is owed more than $5000 can rely on this act to petition to the court to make the debtor bankrupt should the debtor’s own petition not proceed.
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Presenting a debt agreement proposal is an act of bankruptcy and a creditor who is owed more than $5000 can rely on this act to petition to the court to make the debtor bankrupt should the debt agreement not proceed or be terminated.
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Signing a controlling trustee authority (the first step to establish a PIA) is an act of bankruptcy and a creditor who is owed more than $5000 can rely on this act to petition to the court to make the debtor bankrupt should the personal insolvency agreement not proceed or be terminated.
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