What is Bankruptcy?

Bankruptcy is a legal status conferred under the Bankruptcy Act 1966 (Cth). The Act applies Australia wide. A person declared bankrupt is able to have most of their property (exceptions include household furniture, personal injuries compensation and certain vehicles) made available for distribution amongst creditors (s58). A bankrupt also has certain restrictions placed upon them although one advantage is that creditors, in most instances, are unable to pursue them further for payment (s58(3)).

Bankruptcy was originally designed to prevent people who could not pay their debts being imprisoned. It provides a method by which some control can be taken over the debtor’s affairs to ensure that the entire financial disaster can be brought to an end, and that the debtor and creditor are allowed to make a fresh start. When people become bankrupt, most of their property is taken over by either a registered trustee or the Official Trustee (or the office of the Official Receiver). All bankrupts must supply any relevant information that is requested by the trustee. Bankrupts who are paying contributions to their bankrupt estate may not travel overseas unless they have the permission of the court. The trustee can sell property, carry on a business, sue for any debts owed to the bankrupt and generally take over the financial affairs of the bankrupt in order to pay creditors.

The bankruptcy generally continues until discharge or annulment takes place. This can be when the bankrupt deceased’s estate has been fully administered (see below) or when all debts have been paid, or it can be automatic after three years though in certain circumstances it can go longer.