In Australia, the term bankruptcy is used in relation to an individual person, rather than a company.
The law of personal bankruptcy is covered by the Bankruptcy Act 1966 (Cth) . The government agency responsible for administering the Bankruptcy Act is the Australian Financial Security Authority, otherwise known as AFSA .
An individual facing financial difficulties may take steps to declare themselves bankrupt by lodging a Debtors Petition with AFSA. Alternatively, a creditor who is owed money may make an application to the Court - a Creditors Petition - to make someone bankrupt.
When someone becomes bankrupt, a Trustee in Bankruptcy will take over and manage their property and assets and handle their liabilities. The trustee’s role is to sell the assets to raise money to pay all the creditors as much of the money owed as possible.
When a person is bankrupt, they may not be allowed to travel overseas, or to work in certain professions. Bankruptcy usually lasts for three years, after which the person is discharged from bankruptcy - although it will remain on their records for 7 years. If all the bankrupt's debts are able to be paid in full, the trustee can annul the bankruptcy.
There may be alternatives to going bankrupt. A person can go into a debt agreement, or a personal insolvency agreement, which involve less time and restrictions than bankruptcy. Debtors may be able to negotiate informal repayment arrangements with their creditors. Talk to financial counsellor or to a qualified ARITA Professional Member about the alternative options.
To find out more about bankruptcy and other personal insolvency administrations, a document summarising the key features of the different types of formal administrations can be downloaded from the link below, or please visit the AFSA website.
ARITA and AFSA provide a range of information sheets for further information.