Bankruptcies, what are they?

In each of 2013 and 2014 financial years approximately 20,000 Australians declared themselves bankrupt.

A declaration of bankruptcy is one of several options available to persons who may be insolvent and provides a finalisation or moratorium to all of their creditors.  It may be initiated by either the debtor themselves or a creditors petition via the courts.

The affairs of the debtor are transferred to a specialist accountant who then stands in the shoes of the debtor and then acts with all the authority in place of the debtor.

It provides an elimination of all obligations and disposal of most property.  All debts e.g. tax debts, credit cards, telephone accounts, which are unsecured, will be eliminated, whilst secured debts e.g. home loan, business loan will be complicated until enforcement of security determines what equity (if any) exists.

It may also cause problems for anyone who has guaranteed an account e.g. a parent who has guaranteed a phone plan for a minor.

The trustee ends the bankruptcy by making a distribution to creditors to finalise their entitlements.  The debtor is then, after the period of bankruptcy (typically five years) able to start their financial arrangements again.  Obtaining credit and starting a new business will certainly not be as easy with bad credit ratings and financiers reluctant to advance other than a minimum level of credit.  Previously simple tasks e.g. renting, phone and utilities will be challenging.