Bankruptcy is a legal process where a person is declared unable to pay their debts.
The process of bankruptcy can either be voluntary or involuntary. A voluntary bankruptcy is where the person voluntarily enters into bankruptcy. An involuntary one is where a creditor – that is, a person who is owed money – seeks court orders seeking that the person who owes money is made a bankrupt.
A bankrupt person essentially relinquishes control of their financial matters to a person (or organisation) known as a Trustee. The Trustee is responsible for managing the bankruptcy and typically has qualifications as an accountant or a commercial lawyer. The Trustee investigates the financial circumstances of the bankrupt and finds out what the bankrupt owns and owes. The Trustee then can sell certain assets and apply the proceeds to the creditors of the bankrupt.
Bankruptcy is a serious matter. A bankrupt:
- Will be registered permanently on a registry of bankrupt people – the National Personal Insolvency Index;
- Cannot be a director;
- Cannot travel overseas;
- Must tell a credit provider that they are bankrupt; and
- Will likely have difficulty obtaining credit in the future.
Bankruptcy usually last for 3 years, after which the bankruptcy is discharged. Most debts that accrued up to the date of the bankruptcy also become discharged. This is because a key concept in the bankruptcy process is to give the bankrupt an opportunity to start anew, with a clean slate.
If you need help with bankruptcy or you wish to make an application to make a person bankrupt, please call us at Adams & Partners Lawyers and we will see what we can do to help.
Written by Kenneth Ti.