What happens when you are Bankrupt?
There are two routes to bankruptcy. A creditor pursuing you for payment of a debt for which judgment in Court has been obtained may “petition” the Court for your bankruptcy, or you may decide that you can no longer cope with the pressures of owing money so you may voluntarily file your own “petition”. Either way, the consequences are similar.
Consequences of Bankruptcy – The Official Assignee
The Official Assignee is appointed as supervisor and controller of your affairs. The first thing that happens is that the Assignee advertises the fact of your bankruptcy. All your property passes to the Assignee who becomes responsible for collecting and assessing your debts which are crystalised, collecting in and realising any assets and managing your income with a view to creating a pool of funds to be made available to repay your creditors.
To assist with that process you must complete a statement of affairs. From that the Assignee, will determine what steps he or she is going to take. The Assignee may mean, and has the power to do so on oath and/or publicly. The assignee may also call a meeting of your creditors.
The Assignee has the power to sell any of your assets, subject to statutory limit of leaving you with tools of trade to the value of $500, and furniture and personal effects to the value of $2,000. These limits are subject to some discretion to increase those amounts. The assignee also has the power to require you to contribute an amount to that pool. If you are employed, the Assignee will leave you an allowance from your salary to live on.
Restrictions on Bankrupt Persons
During the three years of bankruptcy, there are a number of restriction on you as a bankrupt. These include prohibitions on incurring any credit, on acting as a company director, on overseas travel (unless the Assignee consents) and a prohibition (without consent) to operating your own business. Consent can be obtained to enter or continue business after making an application to the Assignee. In that application, it must be shown that the business is profitable, that there is ongoing work, that there is good cash flow and that someone will monitor and supervise the business.
Transactions with other and gift made by you within a certain period prior to your bankruptcy can be set aside and the property reclaimed by the Assignee.
There are a number of consequences if you do not assist the Assignee, including the Assignee’s power to have you arrested and examined. Generally, at the end of a 3-year period all debt remaining is wiped and you are free to start again.
Some people (who have been there) say that going bankrupt was the first step on their way to making their fortunes…
If you are contemplating or a facing bankruptcy, then you should seek professional advice.
DISCLAIMER: All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers, for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information.