What is Bankruptcy and how is it declared? (2022 Updated Guide)

Bankruptcy is a legal process wherein people who are unable to pay their debts give up their assets and control of their finances, either by consent or by court order, in exchange for legal protection from their creditors.

Are you eligible to file for bankruptcy?

A bankruptcy petition can generally be submitted by any debtor. This means that there is a wider range of persons who can apply for bankruptcy, including those who are not Australian citizens and those who are under the age of 18.

If you are a non-citizen of Australia, you must abide by s55(2A) of the Bankruptcy Act and prove your connection to Australia. This means you must show that you are physically present in Australia or that you normally reside here; by having a home or place of business here; by using an agent or manager to do business here; or by showing that a member of your business or partnership is engaged in business here.

What is the procedure for declaring bankruptcy?

Your Debtor’s Petition must be submitted:

An application submitted to the official receiver (Registrar in Bankruptcy) that includes the Statement of Affairs is known as a “Debtor’s Petition.” This petition is crucial because it serves as the foundation for the trustee’s calculations and distribution of your assets to pay debts. After you are authorised, the 3-year bankruptcy period begins immediately. It is a thorough process. You must be diligent and provide accurate information about your assets.

 After receiving the aforementioned documentation, the Official Receiver will decide whether to accept it and file for bankruptcy:

 According to the Bankruptcy Act, it is up to the Official Receiver to decide whether to approve your claim. They can accept the bankruptcy application unless:

• Based on the information you submitted, they conclude that you are likely to become solvent again, i.e. you will be able to repay your debts without going down the route of bankruptcy
• You don’t want to pay your creditors
• You were declared bankrupt within the last five years
• You’ve already been declared bankrupt three times

 

What happens after filing for bankruptcy?

 Your completed Debtor’s Petition and Statement of Affairs will be processed as soon as possible by the Australian Financial Security Authority (AFSA). This means you won’t be able to withdraw your documents and reconsider your decision. You are legally declared bankrupt after the petition is granted. The creditors you listed in your Statement of Affairs form will be informed of your bankruptcy by AFSA. After your Bankruptcy Trustee receives your documentation and forms, they will begin assessing your financial situation.

If you would like more information what bankruptcy is and how it is declared, then please contact Australian Bankruptcy Services on our 24/7 expert advice line on 1800 462 767.