Bankruptcy is essentially dealing when the individual is insolvent. Meaning, that an individual is unable to pay his/her debts as and when they fall due.
There are two main ways bankruptcy comes about:
Voluntary Bankruptcy (Debtor Petition)
Any debtor who has a business or residential connection with Australia may present a debtor’s against themselves. There is no minimum debt for this to occur.
Creditor’s Petition (Involuntary Bankruptcy)
In order for a creditor to petition for an order they must be able to establish:
- Debtor owed a debt of $5,000 or more, and
- Debtor committed an act of bankruptcy within six months before the filing or presentation of the petition, and
- At the time of the act of bankruptcy there was a connection to Australia.
If the court accepts the creditors petition a sequestration order is ordered.
There are alot of similarities between insolvency that deals with companies and individual bankruptcy that are often confused. the table below shows the comparison between the two.
Are there any other options besides bankruptcy?
Yes, the are several options such as entering into a debt agreement, personal insolvency agreement, temporary debt protection for six months and an agreement with each of your creditors. The best option for your circumstances will need careful evaluation.
A debt agreement is just that it is an agreement that you enter into with the creditors to satisfy their debts without having to be made bankrupt. Often you negotiate to pay a proportion of the debt.
There are often fees for the proposal and management of the agreement but these will vary between administrators. The agreement can go for three years, however if circumstances permit they can be extended to five years.
Personal Insolvency Agreement
This is the second agreement options available. A PIA is also referred to as a Part X(10) and is a legally binding agreement between you and your creditors. The agreement can be in a lump sum or installments and there is reduced regulations around the time limits involved and amount of money required to enter into an agreement of this nature.