What is bankruptcy?
Bankruptcy is a legal process in which you are declared unable to pay your debts. Bankruptcy can impose many limitations on you and your business.
Before you think the sky is going to fall in, read our posts on dealing with bankruptcy.
The limitations of bankruptcy are:
On your income
Bankruptcy can put limitations on your income that will stop you from earning over a set limit. After you have declared bankruptcy, you can’t earn over the set threshold that is set by the Australian Financial Security Authority. This threshold can increase depending on how many dependants you support. If you earn over the threshold, the income will be spread among your creditors via the trustee that is assigned to your case.
On your assets during bankruptcy
Another limitation that bankruptcy can impose on you is a set threshold on the value of the assets that you may own. You will be allowed to keep most household items and goods. Items such as your jewellery, antiques and art could be sold by your Trustee and the money would be distributed to your creditors. You will also only be allowed to keep your car and tools for work if their values come under the threshold that is set by the Australian Financial Security Authority.
Owning a home during bankruptcy
One of the most significant limitations of bankruptcy is that any property that you own will be sold by the Trustee and the money will be distributed among your creditors, which also includes shares in property. If your home loan was secured, the creditor who it was secured with may repossess your house.
You can still apply for a loan or credit while you are bankrupt, but your success will be at the lenders discretion and you won’t be allowed to borrow more than $5,398 (check this). Lenders usually view people who are bankrupt as too high a risk to lend any funds to and if you don’t disclose your situation to them, you may face significant penalties.
On overseas travel
You will not be able to travel overseas while you are considered bankrupt unless you receive permission from the court.
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