Bankruptcy?

If you have more debt than you can afford to repay you might need to consider personal bankruptcy, but that will depend largely on what types of debt you have. Declaring bankruptcy does not release you from being liable to repay non-provable debts or secured debts.

Secured debt

If you decide to keep the asset subject to security you will be obliged to continue to pay for it even if you declare yourself bankrupt. The risk you need to carefully consider is if you cannot afford to pay for the secured asset (ie a car lease) and you wish to surrender the asset at some later time (ie sometime after you declare bankruptcy) and the secured creditor suffers a loss on the sale of the asset then the secured creditor may claim that you are still liable to pay any shortfall (despite your bankruptcy). To avoid this risk we always advise our clients that if you have a asset subject to security (ie a car) and the amount outstanding exceeds the value of the asset then it is best to surrender the asset prior to bankruptcy and allow the secured creditor to sell the asset and claim in the bankruptcy for the shortfall. This way it avoids any risk that you may continue to be liable to pay any shortfall after you declare bankruptcy.

Credit cards

The most common type of debt in bankruptcy is credit card debt. There are no limits on how many credit card debts you can include your bankruptcy.

Store cards

Store card debts are becoming more popular. Some stores like (Myer, David Jones and Harvey Norman) offer store cards to eligible applicants. These store cards allow you to purchase goods from the retailer. The store card is often provided by a finance company (like GE money). If you go bankrupt any unpaid balance on the store card can be included in your bankruptcy.

Personal loans

Many banks and finance institutions offer personal loans to eligible applicants for many different purposes (like holidays, to buy cars etc). If you have a personal loan the unpaid balance on it can be included in your bankruptcy.

Guarantee debts

If you have guaranteed a debt for another person (ie a spouse or a family member) or you have personally guaranteed a business debt and the debt has not been paid and you wish to declare yourself bankrupt, then you should list in your bankruptcy application all parties you have provided a personal guarantee. Your bankruptcy trustee will then write to all parties you have provided a personally guarantee to and provide them with the opportunity to claim in your bankruptcy.

Non- provable debts

You need to be aware that some debts cannot be included in your bankruptcy. These are known as non-provable debts and are best explained in our post talking about non-provable debts.

Before you file for bankruptcy it is best that you consult with a bankruptcy expert to establish what debts can be included in your bankruptcy.

Here at the Australian Bankruptcy Service we have a Registered Trustee in Bankruptcy on site who can assist.

If you or your spouse are contemplating bankruptcy and I want to understand what types of debts are cleared by bankruptcy, then call us today on 1800 462 767 to discuss your options.

All calls are free, entirely confidential and if required, anonymous.