ONLINE CHAPTERfinance in practiceIS PERSONAL BANKRUPTCY AN OPTION FOR REDUCING YOUR DEBTS?
Like many students, you may well graduate from
university and begin your working career burdened
with personal debt. You may also then add to the
existing burdens of repayment of FEE-HELP and
credit card debts by purchasing a new wardrobe,
a new car, or perhaps even a new home on credit
as you settle into a new job. But what happens if
you lose your job, are struck by a major illness that
runs up large uninsured medical bills, or become
responsible for caring for an invalid parent (three
of the most common causes of personal financial
distress)? Would filing for personal bankruptcy be a
possible solution for your debt problems?
Yes and no. The Australian legal system does
allow for personal bankruptcy. Initial guidance
from the Australian government is available
from the Australia Financial Security Authority
(webpage https://www.afsa.gov.au/), with specific
details for personal bankruptcy procedures given
at https://www.afsa.gov.au/debtors/bankruptcy.
Personal bankruptcy differs from the corporate
insolvency process managed through ASIC.
Personal bankruptcy generally lasts for a period
of three years, but can be extended in certain
circumstances. There is a permanent record of your
bankruptcy on the National Personal Insolvency
Index (an electronic public register which can be
accessed by anyone for a fee).Your creditors are notified of your bankruptcy,
and unsecured creditors should stop pursuing you
for payment of your debts. A trustee, as this person
is called for personal bankruptcy, will be appointed
to your case. In order to pay your creditors, this
trustee will:- sell your assets (although you will be able to
keep certain types of assets) - mandate contributions from your income once
you earn over a certain amount - investigate your financial affairs and may
recover property or money that you have
transferred to someone else for inadequate
consideration.
The duties of a trustee in personal bankruptcy
are specified in legislation, and trustees have to
adhere to certain standards while administering
your estate. You can choose to appoint a registered
trustee by obtaining and providing their consent
when you lodge your petition to become bankrupt.
If you do not choose a trustee, the government’s
Official Trustee is initially appointed to administer
your estate. Your creditors may choose to change
the trustee at any time.
So it would seem that you will be committed to
paying off your student loans whether you seek the
protection of bankruptcy or not.
trustee
A person appointed to manage
a case of personal bankruptcy
Creditors’ Committee
A creditors’ committee may be formed, following a vote of creditors, to consult with the voluntary
administrator or deed administrator and receive reports on the conduct of their administration. A
creditors’ committee can also approve the administrator’s fees.
In a voluntary administration, this committee is called a ‘committee of creditors’ and may be formed
at the first creditors’ meeting. While the company is under a deed of company arrangement, it is called
a ‘committee of inspection’.
All creditors, including a representative of the company’s employees, are entitled to stand for
committee membership to represent the interests of all creditors. If a creditor is a company, the creditor
can nominate a director or employee to represent it on the committee.22-2d AFFECTED PARTIES IN ADMINISTRATION
Employee Entitlements Under Voluntary Administration
If the voluntary administrator continues to trade the business, she or he must pay out of the assets available
to them, ongoing wages for services provided and other employee entitlements that arise after the date